October 15, 2016

No one ever likes to receive notification of an audit, no matter what kind it is! Hopefully, talking about why these audits take place, and what to expect – will help make it a less stressful experience.

As you may remember, when you initially purchase and/or at each renewal for your Workers’ Compensation insurance, you provide the carrier with two main types of information; estimated payroll, and which classification codes apply to your employees. The premium is then generated and presented to you, and coverage begins once payment is received. An audit is needed to determine the actual payroll and premium as opposed to the estimates provided when the policy was originally purchased. Any changes in your business operations that affect payroll or classifications will result in an audit credit or deficit.

If you want to avoid an unpleasant audit bill surprise, here are some things you can do.

1. Keep an eye on actual payroll vs. estimated payroll
   • Did you hire more people or increase salaries?
   • Did you transfer/promote employees from one position to another that put them in a different (more expensive) class code?
   • Each time you receive your policy, confirm correct class codes are being used – incorrectly classified employees can greatly affect your premium.
2. Be prepared for the audit – gather your documentation
   • Have one contact person that really knows the operations, job duties, and payroll details
   • Gather general organization information (business operations, locations, employees, officers, etc.)
   • Organize payroll data (payroll records, W-2, 1099, overtime pay, etc.)
   • Document subcontractor/Independent Contractor information – if applicable (evidence that they carry their own workers’ compensation insurance)
3. Cooperate with the auditor
   • Never ignore an audit notification
   • If on-site audit, make them feel like a welcome guest
   • If phone audit, have all documentation available to answer questions
   • If self-audit, complete and return the form in a timely manner

We recommend keeping your CalNonprofits Insurance Services Account Manager notified of significant changes during your policy year, so adjustments can be made to your premium BEFORE a final audit takes place. We can also assist you with questions as you complete your audit. You can find more detailed information regarding Workers’ Compensation audits through State Compensation Insurance Fund’s Premium Audit Guide, available at: http://content.statefundca.com//pdf/PremiumAuditGuide.pdf