A workers compensation audit is performed on an expired workers compensation policy. Just because an audit did not come out the way an employer would like doesn’t make it incorrect. Audits represent actions that occurred in the past. You may not be able to change the past. But can you change the future?
Audits are ripe with errors. The very method of conducting a workers comp audit sets the stage. But to gain a better understanding of how audit errors fit into the mix you need to understand how they fit into the overall workers compensation pricing process.
When a physical audit is conducted you give the auditor access to your payroll records for the policy period that recently expired. They compile the information from the records you provide, verify the dollar amounts by comparing them with your federal 941’s and or state wage and contribution documents. Then they conduct an interview to discover more detail of the work process your employees are conducting. From the interview process they will review the job functions each of your employees and compare their job duties with the codes on your workers compensation policy. So far so good. At this point the auditor may discover that the codes used on your original policy and your governing classification code are incorrect. Depending on the type of business you operate this may trigger a new code being added to your policy or a reclassification or reassignment of employee payroll into another code present on your policy. Yes, there are rules that insurance companies must follow as to the application of discovered errors at audit. Rules that can be your friend.
Here’s where you need to ask: Is your audit wrong, was your original policy set up incorrectly or have there been changes in what you do that may have had an adverse affect on your audit.
You see, audits are conducted on what occurred in the past. Not only are audits a gathering of payroll or policy exposure information but they are an examination and investigation into the accuracy of the original policy. They are the opportunity for an insurance company to make sure the business operations are properly classed and that they are collecting the proper premium for the exposure to risk.
When it comes to codes and how employees and your business are classed, it’s never written in stone. What I mean by that is that things change. Over time a business may change. What they were doing when they opened their doors may not be what they are doing now. These situations have to be taken into consideration not only during an audit process but in the overall management of an employers workers compensation program.
There is almost always some kind of a disconnect between how an original workers comp policy was set up, operational changes of the business and future effects those changes have on the workers compensation policy and audit process. Management of an employers workers compensation program must be flexible enough to recognize and willing enough to make the proper changes over time to reflect those changes in operation.
So, how can an employer change their future when faced with an adverse audit? Here’s a few pointers:
- Modify Job Processes – If you have been subject to reassigned payroll, that’s where employee payroll may have been moved from a lower rate class to a higher at audit, examine the job processes that may have caused this shift. Identify the key triggers that may have caused the move and work to change your process to fit into the lower rate class.
- Examine Operational Exposures – If codes have been added to your policy and identified as “being more descriptive of your business,” examine the details of those very operational changes that may have caused this action.
- Evaluate Overall Workers Compensation Program – When faced with significant changes presented to you at audit, step back and evaluate your overall operation from the point of its effect on your workers compensation program. You need to make sure what you are being told by the insurance company and auditor are correct.
You can change your future, your workers compensation future, with due diligence and knowledge. A bad audit may not be so bad after all, right? I don’t think I would go that far!! But you can turn a bad situation into a learning experience and one that may have a positive effect on your company future!
Maybe it’s time to look for help. If you’re faced with this type of problem and do not have the staff or experience to work through these issues be sure to contact a Workers Compensation Consultant for help!
Hope this helps out and thanks for reading!
