Below is a list of information that will typically be reviewed by a workers comp auditor while conducting an audit at the end of your workers compensation policy. Reviewing this information and tips prior to your audit should help you be better prepared.
- Ownership of the Business; Be prepared to provide information on the ownership of the business. The auditor will need to know the correct business entity; Corporation; LLC; Partnership or Sole Proprietorship.
- Principals; You will be asked for a list of the principals of the business which will include the owners, officers, partners or members of the business, depending on the type of business entity under which the business conducts its operations. You will be asked to list each principal, identify and describe their duties and activities and provide their actual salary or compensation.
- Describe Work Performed; You will be asked to provide a description of the work performed by employees and list the number of employees for the audit period. Employees will include all others who received a wage, excluding the principals.
- Gross Wages; This typically includes; salary; wages; commissions; bonuses; piecework; overtime wages for vacation, holiday and sick pay; incentive pay; and room or board, whether paid in money or other type of compensation. You’ll find gross wages to be the money paid before any deductions. The auditor will need the wage information that corresponds to the workers compensation policy period being audited.
- Overtime; Overtime wages, while included within the gross, should be separated so they are easily identified by the auditor. Overtime adjustments are made in most cases.
- Tips; If your business generates tips for employees, this amount should also be separated for easy identification.
- Commissions; Should be separated and easily identified by the auditor.
- Subcontractors and Contract Labor; You will be asked to list the name of the subcontractor, describe the type of work performed and show the total amount paid during the policy period. Be sure to secure Certificates of Insurance from each Subcontractor or Contract Labor and provide that certificate along with your payroll information. The certificate must show coverage during the audit period.
- Uninsured Subcontractors; If you used uninsured subcontractors who provided materials for the work they performed be sure to provide invoices that show the amount of materials they supplied for the work they did.
- Documentation; You will be asked to provide documentation for verification purposes. This may include; 941 tax forms; Employers Quarterly Federal tax return or STUA; State Quarterly Wage and Contribution reports. If there are no quarterly reports, a copy of your last year’s Federal Schedule C from your Individual 1040, a 943 tax form and or the 940 Employers Annual Federal Unemployment tax return. These items are used by the auditor to verify the payroll numbers.
- Reviewed Items; The auditor will also want to review your records and ledgers. This may include your checking account; general ledger and cash journal. Keep in mind all this information is used to verify the payroll numbers and to uncover things like unreported cash disbursements which in turn may be picked up and included on the audit.
Well there you go! Just a short list of some of the major components that make up a workers compensation audit. Use this to get a head start on compiling the type of information needed. Audits don’t have to be stressful…just take a little time and prepare!
Hope this helps you out! Thanks!