Insurance companies verify the correctness of workers' compensation insurance premiums through a review procedure known as a premium audit. This review looks at the company's operations, payroll, and risk exposure during the policy period to see if the initial premium was a good reflection of those things. It usually happens at the end of the policy term.
Why Do Insurers Conduct Premium Audits?
Premiums for workers' compensation insurance are determined using estimates given when the policy is first purchased. Here are some of the factors:
The sum of all wages paid to workers throughout the policy's duration is known as payroll.
Workers are grouped into specific categories according to the tasks they carry out on the job.
The dangers that could arise from carrying out a company's daily operations are known as risk exposure.
The audit guarantees that the final premium represents the company's real exposure and risk level, as these estimations could differ from real statistics. As a result:
1. Be careful not to overcharge or undercharge.
2. Make sure the policyholder and the insurer are treated fairly.
3. Make sure you're following all the rules and regulations.
How Does a Premium Audit Work?
1. The policyholder is usually notified by the insurer of the impending audit through phone, email, or regular mail.
2. In order to gather information, the company must submit the following documents:
Financial records, payroll records, tax returns (such as 941 forms), general ledgers, and insurance certificates for subcontractors.
3. The accuracy of the reported payroll and job classifications is confirmed by an auditor who checks the given papers.
4. The insurer may make adjustments based on the findings by:
If the original premium estimate was too high, your payment will be refunded.
Additional premiums will be invoiced to the business in the event that the actual figures surpass the estimates.
5. There are various methods for conducting audits, including:
An auditor pays a personal visit to the company's location to conduct an audit.
Organizations can send in paperwork for an audit via mail or phone.
Online technologies and platforms are utilized to conduct virtual audits.
Key Components of a Premium Audit
1. Payroll Validation
The purpose of the audit is to verify that the payroll amounts reported match the amounts actually paid to workers. For covered employees, this encompasses their pay, bonuses, and overtime.
2. Job Classification Accuracy
The tasks that employees complete determine their job classification. Incorrect premiums can be the consequence of misclassifications such as classifying high-risk employees as low-risk.
3. Subcontractor Verification
Workers' compensation rates are affected by the coverage status of subcontractors, who are frequently employed by businesses. In order to verify that subcontractors have their own workers' compensation coverage, the insurer will evaluate their certificates of insurance.
Benefits of a Premium Audit
Verified Premiums: Makes sure companies pay exactly what they owe.
The policy is in line with the workers' compensation legislation that are mandated by the state, ensuring regulatory compliance.
It finds holes or misclassifications that can cause future liabilities, which improves risk management.
How to Prepare for a Premium Audit
1. Make sure all financial records, tax returns, and payroll paperwork is easily accessible.
2. Research the various job titles used in workers' compensation programs.
3. Keep all subcontractors' insurance certificates current.
4. Any time there is a change in payroll, employee responsibilities, or company operations while the insurance is in effect, you must notify your insurer.
Common Mistakes to Avoid During a Premium Audit
1. Higher premiums may result from incomplete documentation, which includes missing or erroneous records.
2. Large disparities may emerge if proper job classifications are not applied.
3. Failure to Verify Subcontractors' Workers' Compensation Insurance Can Drive Up Your Premiums.
Conclusion
An essential step in ensuring accurate and equitable workers' compensation insurance premiums is a premium workers comp audit. Businesses can remain compliant with workers' compensation standards, speed the audit experience, and minimize unexpected expenditures by knowing the process, preparing the relevant documentation, and maintaining correct records.
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