How to Navigate Your Workers Comp Audit: A Guide for Central New York Businesses

Are you feeling anxious about your upcoming workers comp audit? You're not alone. Many Central New York business owners find this process confusing and time-consuming, especially when unprepared. But with proper planning, your workers comp audit can be straightforward.

At the Horan insurance agency, we've guided many local businesses through this critical process. We understand the challenges you face and want to help you prepare effectively.

In this article, we'll cover what a workers comp audit involves, when to expect it, what documents to gather beforehand, and practical tips to help the process go smoothly.

What Is a Workers Comp Audit and Why Does It Matter?

A workers comp audit examines your business's payroll records to ensure you're paying the right premium for your coverage. When you first purchase a policy, your premium is based on estimated payroll figures. The audit adjusts this amount to match your actual payroll during the policy period.

This process matters for several reasons:

1. It ensures you pay only for the coverage you actually need
2. It helps insurance companies maintain accurate pricing
3. It's typically required by law in most states, including New York

When to Expect Your Workers Comp Audit

Your workers comp audit typically happens 30-60 days after your policy period ends. This audit covers the time your policy was in force, regardless of whether you've renewed or canceled it.

The policy term refers to the dates covered by your policy—usually one full year from the effective date to the expiration date. Understanding this timeline helps you prepare your documentation appropriately.

Essential Documents to Gather Before Your Audit

Gathering the right documents beforehand can save you time during the audit process. Here's what you'll need:

1. Detailed Employee Information

Create a comprehensive statement of duties for each employee. Include:

• Job titles and descriptions
• Work locations
• Classification codes (if known)
• Hours worked
• Compensation details

This information helps auditors accurately classify your employees based on their risk exposure.

2. Tax and Payroll Documentation

Collect all relevant tax and payroll records, including:

• Quarterly federal tax returns (Form 941)
• Annual federal tax returns (Form 944, if applicable)
• 1099 forms for independent contractors
• Payroll registers or journals
• General ledger
• Cash disbursement records

Remember that payroll data should align with your policy period, not necessarily the calendar year. If your policy runs from July to June, for instance, you'll need to organize your records accordingly.

3. Additional Compensation Records

Don't forget to document:

• Housing allowances
• Travel reimbursements
• Other non-cash compensation
• Benefits provided to employees

These items often count toward your total payroll calculations.

4. Contractor Information

Prepare documentation for any contractors who performed work for your business during the policy period, including:

• Payments made to contractors
• Certificates of insurance from contractors
• Contract agreements

As with the payroll data, having these records organized by your policy period rather than calendar year can make the audit process more efficient.

Understanding the Audit Process

Depending on your insurance company, your workers comp audit may take different forms:

Mail Audits

Many insurance carriers, including those we work with at Horan, send a mail audit form for you to complete. This form requests essential payroll and employee information. Even if your policy has been canceled, you still need to complete and return this form.

In-Person or Virtual Audits

For more complex businesses, an auditor might schedule an appointment at your location or conduct a virtual audit. In these cases:

1. The auditor will contact you to schedule a time
2. Your appointment should include the person most familiar with your payroll and employee duties
3. The meeting length will vary based on your business complexity
4. Results will be provided to your insurance company, not directly to you

When reviewing payroll records, it's important to understand how your state treats overtime pay. Unlike some states, in New York, overtime premiums are not excluded from workers comp calculations and must be included in your total payroll figures.

How the Audit Impacts Your Premium

Your workers comp premium is primarily determined by three factors:

1. Total Payroll: The more employees and higher wages you have, the higher your premium.
2. Job Classifications: Different roles carry different risk levels and corresponding rates. For example, office workers typically have lower rates than construction workers.
3. Claims History: Your experience modification factor compares your claims history with similar businesses and can affect your premium.

After the audit, your insurance carrier will adjust your premium based on the findings. If you've overpaid, you'll receive a refund. If you've underpaid, you'll receive a bill for the difference.

Also, read our comprehension guide explaining workers compensation.

Common Mistakes to Avoid During Your Workers Comp Audit

When preparing for your workers comp audit, be careful to avoid these frequent pitfalls:

1. Misclassifying Employees: Ensure all employees are properly classified based on their actual job duties, not just their titles.
2. Incomplete Records: Missing or disorganized documentation can lead to estimation errors and potentially higher premiums.
3. Overlooking Subcontractors: If your subcontractors don't have their own workers comp insurance, their payroll might be included in your audit.
4. Ignoring the Audit: Failing to respond to audit requests can result in policy cancellation or estimated premiums that are typically higher than actual.

Preparing for a Workers Comp Audit

Taking proactive steps throughout the year can help with the audit process:

1. Maintain Organized Records: Keep detailed payroll records organized by policy period, not just calendar year.
2. Track Employee Roles: Document when employees change positions or take on new duties that might affect their classification.
3. Document Contractor Relationships: Obtain certificates of insurance from independent contractors and maintain clear records of payments.
4. Consult with Your Agent: If you're unsure about how to classify employees or what records to keep, ask your insurance agent for guidance.
5. Review Past Audits: Previous audit findings can provide valuable insights for improving your record-keeping.

With organization and preparation, you can approach the audit process with greater clarity about what to expect.

How Horan Can Help with Your Workers Comp Audit

Workers comp audits are an essential part of your business insurance. By maintaining clear records throughout the year and understanding what auditors look for, you can approach this requirement with better information.

Our team at the Horan insurance agency can assist you with questions about workers comp audits and provide information about how to prepare. We work with several carriers and can explain how different policies approach the audit process.

Click the Get a Quote button below to learn more about workers comp insurance for your Central New York business or to discuss how we can provide information about preparing for your upcoming audit.