A premium audit happens every year, so some employers view it as routine and assume it will be correct, others take it lightly and may miss filing deadlines, but it is the savvy employer who prepares for the audit, in the same way they might prepare for an IRS audit. Here’s why:
- It likely will save you moneyThere are three important things to remember about Premium Auditors. First, their objective is to maximize your premium, after all they work for the insurance company. Second, overworked, they have tight time constraints. Third, the process is complex and prone to errors and omissions.While the list of possible errors and mistakes is endless, some common problems are incorrect job classifications, erroneous experience mod, improper charges for subcontractors, failure to cap payroll of executives, “excluded remuneration” included, credits or modifiers not applied, mathematical errors, multi-state exposures, and failure to take advantage of separation of payroll opportunities. If the employer does not provide complete data in a well-organized presentation, the auditor will default to what produces the greatest premium.
When employers create their own audit package, they control the data the auditor observes, they simplify the auditor’s job, reduce probing questions, and build a reasonable defense for areas of disagreement. Since a Workers’ Compensation premium is estimated initially, the actual cost is determined through the premium audit, and proper preparation avoids higher and unexpected costs.
- Failure to complete audit in timely manner can double the cost of the premiumIn past years, the audit process was somewhat flexible. That changed in January 2017. The National Council on Compensation Insurance (NCCI) established an Audit Noncompliance Charge (NCCI item B-1429), which instructs workers’ compensation carriers to apply a charge up to two times the annual estimated premium, in addition to the annual estimated premium, for policyholders who do not complete their premium audits in a timely manner. Following the announcement by the NCCI, the mandate was adopted by independent rating organizations in Minnesota and Wisconsin (Minnesota Workers’ Compensation Insurers Association, and Wisconsin Compensation Rating Bureau, respectively).In addition, failure to cooperate with the audit may result in a cancellation of workers’ compensation coverage. Audit noncompliance will disqualify an employer from obtaining coverage from any insurance company until the outstanding audit is completed.
The new form is attached to all new and renewal policies with effective dates on or after January 1, 2017. According to the new procedure, the carrier must make two attempts to obtain audit information and properly document those attempts. Policyholders who do not supply their payroll data after this point will be subject to the penalty charges.
- You can control the processThere are three ways an audit can take place: mail, phone, or a physical audit. Some employers receiving the mail audit pass it along to a finance officer or bookkeeper and that’s it. Yet, these audit forms are confusing and don’t ask the right questions. And if the person completing the form is not knowledgeable about workers’ comp, you will end up paying more than necessary. Similarly, a phone audit doesn’t always ask the right questions and errors can result from communication issues and misinterpretations.A physical audit is conducted on your premises. In addition to preparing the audit package in advance, employers should take steps to ensure the visit goes smoothly. Assign a knowledgeable, friendly person to work with the auditor and provide a clean, well-lit work space. Have the audit package ready and do not provide other information unless the auditor asks for it. Be sure a knowledgeable person escorts the auditor, if there’s a tour of the facility.
We are available to help. As Certified WorkComp Advisors, we are trained to prepare employers for audits, spot errors and get them corrected.
If you would want to build an error-free, overcharge-free audit download a FREE copy of our Work Comp AuditCheck Program, by visiting http://www.workcompauditcheck.com/.
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