Why Is My Workers’ Compensation Policy Audited?
Why Does the Insurance Company Review the Policy Again?
At the beginning of the policy, the insurance company may not know exactly how much payroll the business will have or how operations may change during the year. The audit helps determine the actual exposure for the completed policy period.
Estimated Payroll
The policy may begin with estimated payroll. The audit compares that estimate with actual payroll for the policy period.
Employee Classifications
Different types of work may have different workers’ compensation classifications and rates, so the audit may review what employees actually did.
Actual Operations
If the contractor added services, changed trades, expanded operations, or performed work that differed from the original estimate, the final premium may be affected.
What Information May Be Requested?
The insurance company or auditor may request financial and payroll records to verify the exposures that existed during the policy period.
Payroll Records
Payroll reports, tax records, wage summaries, and other documentation may be used to verify the amount paid to employees.
Employee Duties
The auditor may review the actual work employees performed to determine whether the classifications used during the policy period were appropriate.
Subcontractor Costs
Payments to subcontractors may be reviewed, especially when the contractor cannot provide acceptable evidence that the subcontractor carried required workers’ compensation coverage.
Business Operations
The audit may confirm what trades, services, and construction activities the company actually performed during the policy term.
Why Can the Audit Create an Additional Bill or Adjustment?
The final premium is generally based on the actual audited exposure rather than only the original estimate. If the business changed during the year, the audit may result in a premium adjustment.
Payroll Increased
Hiring additional employees, working more hours, or increasing payroll can increase the exposure compared with the original estimate.
Classification Changed
If employees performed work assigned to a different classification, the applicable rate may differ from what was originally estimated.
Subcontractors Were Added
Uninsured or improperly documented subcontractor exposure may affect the audit depending on the policy, jurisdiction, and relationship between the parties.
Estimated Too High
If audited payroll or exposure is lower than originally estimated, the audit may result in a downward adjustment, subject to policy terms and minimum premiums.
Has Your Payroll or Contracting Operation Changed?
Best Formula Insurance can help contractors review workers’ compensation classifications, payroll estimates, subcontractor exposures, policy requirements, and other factors that may affect premium.