Workers Comp Premium Audit Season Over The Next 3 Months
Workers Comp premium audit season is upon us again. Why do I designate this time of year as premium audit season?
The largest number of premium audits for WC are performed from January – February of each year. Why would it be January/February?
January 1 is the most popular renewal date for insurance policies including Workers Compensation.
As a side note, there are some disadvantages to a January 1 renewal date as you can see in the linked article.
The premium auditor will usually contact your company within 30 days and will perform and finish the audit within 60 days after policy expiration. I was going to write the usual – preparing for a WC audit article.
I then realized there are many audit prep articles already on the Internet. I really do not like to refer to them as they recommend such strategies as putting the auditor in an uncomfortably cold or warm room, etc. and how to tell your employees to dress the day of the audit.
There are even many WC carriers that have published articles on the process of a Workers Comp audit. That makes sense as anything a carrier can do to make the auditor’s job easier would be highly recommended.
I am not saying that making the premium auditor’s job easier will help your company when it comes to the audit. There are two main points I wanted to bring up concerning WC audits.
The two most important prep work tasks are (in my humble opinion):
Organization of the audit materials
Dumping folders of data and receipts on an auditor may have been an old school way to have the auditor just give up on the audit. That is not the case any longer.
One of the easiest tasks is to always summarize any of the data on a spreadsheet. That may seem simple. Excel has many benefits when starting to organize your materials.
Many companies are not doing this task. Two of my good friends are tax auditors – one for employers and one for the IRS. They both have stressed the fact that organized data gives the best first impression possible in any type of audit situation.
At many of the premium audit conferences I have attended, the premium audit presenters always refer to a coversheet for the audit materials. The coversheet they recommend is an Excel spreadsheet. A tidy set of materials will help the premium audit do their jobs. Tidiness can save your company premiums.
Designating one and only one very knowledgeable employee to assist the auditor and answer any questions falls under the organization category. Most premium auditors are going to be there for 1/2 to one day at the most. The employee will not be inconvenienced except for a short period of time.
Having multiple employees answer the premium auditor’s questions may end up confusing the auditor and not providing the proper substations for the premium audit.
Separating out any subcontractors/temporary employees along with the proper certificates of insurance is a very good idea. A spreadsheet of these two types of non-employees is also a good idea. Having the premium auditor correct any non-employees that are deemed employees during the audit can be an arduous task at best.
Your company’s organizational skills are extremely important. A yellow flag pops up in the auditor’s mind if your recordsare very disorganized.
An employer that provides:
- Organized payroll data
- A knowledgeable employee to answer questions and provide additional data if requested
- Full subcontractor information
will always have a better workers comp premium audit season experience.
Read Your Workers’ Comp Policy Before The Premium Audit
The second area of preparation I wanted to cover is reading your Workers Comp policy front to back. The basis for all Workers Comp premium audits is, of course, the policy. There are several parts to your policy. The Dec page or Declarations Page is the most important.
Unless your company has many different types of employees, your Dec page should not be that long. Review it very carefully. Does the Dec page describe the business practices of your company? If not, you should be asking questions long before the premium audit.
The premium audit is the worst time to receive an unexpected bill that is not in your company’s budget. I do realize that in this very bad economy your company may not have the time to review everything as you are in the survival mode. Presently, we are seeing companies headed to bankruptcy by owing very large unexpected Workers Comp bills. In other words, reviewing your WC policy is part of your survival mode.
The Dec page is a good start if you are in a time crunch. Reading the whole policy is worth it. I have heard from employers, agents, and other insurance personnel that after the Dec page, the WC policies are all fluff and really do not change. That may be true for possibly one year. That is not true for the long term. A client’s policy changed over 70 times in a year when J&L performed a premium audit review.
The policy will usually contain:
- Rules for the premium audit
- Audit dispute procedures
- What is excluded from coverage
- States that you are covered for Workers Comp – usually on Dec Page
Many times the insurance endorses (changes) the policy before policy expiration, often at the very beginning of the policy year. These changes are called Endorsements. These Endorsements can change the policy dramatically.
Reading the policy and Endorsements will usually generate questions. I always recommend asking your agent/broker and then obtaining another objective opinion.
For every policy, the workers comp premium audit season in 30 – 60 days after your policy expires each year. Being prepared will cut your comp costs.
2021 Update – With the pandemic in place, most audits are performed remotely. In-person Workers comp premium audits may be in the rearview mirror or at least delayed for months or years. The same above suggestions apply. The audits are now being done by video.
If the premium audit visit is being done by video, make sure that you have a copy of the exact materials that the premium auditor requested previously in front of you in case there are any questions.
Check out this article on hybrid premium audits. You may have to send the materials to the premium auditor or premium audit department. Make sure that you only send what is asked for – no more and no less.
Good luck during the workers comp premium audit season.
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