What Is a Workers Compensation Audit?

Adam Murray
Written on September 22, 2020

Workers Compensation Insurance is intended to pay for the medical payments of employees who sustain work-related injuries. This could be an employee who sprains their wrist while tripping in the office, or something more serious, such as forklift injury. In any case, worker’s compensation insurance is designed to make sure that an employer can take care of the needs of his/her employees, while also preventing lawsuits that could otherwise result from workplace injuries.

What is a workers compensation audit?

First, we need to understand how worker’s compensation premiums are calculated.

Worker’s compensation policies are primarily rated based on payroll, and employee classifications. For example, a pastor of a church would be rated in the 8868-class code, while a janitorial/maintenance worker could be written in a 9101 class code. Each class code has a premium rating that is equivalent to the exposures of the employee’s duties. Using the examples above, a 9101-class code (janitorial/maintenance) employee would have a higher premium rate than a 8868 (pastor/clerical) class code. This is because an employee who is responsible for climbing on ladders to change light bulbs has a much greater chance of sustaining an injury than a pastor who is primarily working at a desk.

The second major rating factor is payroll.

The more payroll, the higher the premium. This is where the worker’s compensation audit process comes in. At the end of the policy term, most companies will perform an audit to verify two things!

  1. First, the company will want to verify that your employees are properly classified. It is not uncommon for employees to be misclassified. Sometimes an employee may wear several hats. This can make it difficult to know which classification to use. The audit process acts as another set of eyes, making sure that each employee is classified correctly.
  2. Secondly, the insurance company will verify your payroll to make sure that it accurately reflects what the anticipated payroll was when the policy was written. The payroll will then be updated as necessary

When the audit is completed, your business could receive an invoice or a refund, depending on what (if any) adjustments were made to the policy. This is why you should always attempt to be as accurate a possible at the onset, so that you can avoid potential surprises (both good and bad) at audit time.

If you have questions on how to classify your employees, or what types of payroll should be included, don’t hesitate to reach out to your independent agent for assistance.