Types of Workers Compensation Audits – What they are and some tips to follow

It’s generally accepted that there are three different types of audits that may be performed at the end of a workers compensation policy period. They are the phone audit, the self audit and the physical audit. Remember you can learn more about the audit process at our website. Let’s find out what they are and learn a few tips to make your audit experience better!

The Phone Audit: Usually reserved for smaller, less complicated insured employers, the phone audit consists of a phone interview conducted by either an independent auditor or an insurance company staff auditor. Typically the insurance company audit department will have mailed some guide or form to the insured employer prior to the phone conversation asking the employer to gather the required audit information and providing them a call in number. Once the employer has gathered the information they are instructed to call the auditor and provide the information by phone. Again these types of audits may only be used for the smaller, less complicated employer, who performs no contracting work and used no subcontract labor. A Tip: Be sure to contact the insurance company with your information as soon as you can and certainly no later than their indicated return date. Failure to do so may escalate the audit or allow the insurance company to cancel your policy or levy some fixed percentage increase to your premium. 

The Self Audit: Working our way up the ladder of complexity, the self audit is a bit more complex than the phone audit. Typically the audit department will mail to the insured employer several forms that require completion and submission back to the audit department within a specified period of time. Those forms will ask for payroll information, a list of employees with their specific work duties, ownership information about the employers business, a list of owners and their duties along with specific information on any subcontractors, 1099 and independent contractors used. The employer will also have to provide copies of verification documents usually in the form of tax forms to substantiate the payroll information being submitted. The insurance company will have assigned an individual within their company to review the submitted information which the employer provides and once it’s received they will contact the employer and review the information submitted for accuracy. A Tip: Don’t forget to provide certificates of insurance for any 1099, subcontract or independent contractor labor used. Also don’t forget to provide the requested verification tax documents. Failure to complete an audit may allow the insurance company to cancel the current policy and apply penalties to the premium. 

The Physical Audit: This is the most complex of all. The physical audit consists of an auditor physically visiting the employers place of business. Sometimes the visit will be directed to the employers accountant and conducted at a place other than the business location but this is never a good idea. In a physical audit, the auditor acts as the insurance company’s ears and eyes. In addition to reviewing the employers records they will also ask probing questions about the business operation and the work processes used by the employees in performing their jobs. The auditor will conduct a through review of the business including verification of the business entity and ownership, duties of the owners, officers, members or partners. They will look for common ownership activities with other entities and verify all information regarding payroll generation with the appropriate tax forms. A Tip: Once completed always ask for a copy of the auditors worksheets and review their work for accuracy. When in doubt have your audit reviewed by an independent workers compensation consultant.

Remember, regardless the form it comes in, the workers compensation audit process is part of the insurance policy. You agreed to have the audit conducted when you purchased the insurance policy. Failure to complete the audit will lead to consequences so be sure that you complete your audit in a timely fashion!

Hope this helps you out! Thanks!