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EMPLOYER
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PAYROLL AUDITS: WHAT TO EXPECT
Insurance audits are typically performed on commercial
insurance policies which have adjustable or variable premium
bases. When you purchased your policy, you paid a deposit
premium based on your best estimate of those bases and at the
end of the policy period, the final premium base must be
determined. This process is called a Premium Audit.
By
auditing these policies, insurance companies see that all
businesses pay the correct amount. In addition, the Premium
Audit provides valuable information on your business
operations and allows you to have personal contact with a
representative of your insurance company. This entire process
is designed as a service to ensure that you pay only the
premiums that you owe.
What Records Are Needed For The Audit?
- Payroll Records - including Federal 941 forms as well as
State Unemployment Tax forms
- Cash Disbursement Journal - for subcontractor costs
- Computer Reports - from accounting software such as
QuickBooks or Peachtree
- Certificates of Insurance and TWCC forms (signed and
dated)
Tips on Keeping Costs
Down
- Have the proper person available to assist the auditor
and answer their questions.
- If you pay overtime to employees, properly summarize
overtime paid by individual and class code.
- Construction companies should maintain payroll records
to show time spent in different types of work.
- The use of subcontractors or independent contractors
requires certificates of workers' compensation insurance
from each subcontractor or independent contractor.
- Identify for the auditor any individuals who perform
strictly clerical office duties, strictly outside sales
duties, draftsmen, or strictly drivers.
- Keep a record of tips declared by restaurant employees.
When Will the Audit Be
Done?
Soon after your policy expires (or is
canceled). Normally, you will be contacted within 30 days
in regards to completing the premium audit. Most audits can be
completed in a fairly short period of time (less than an hour)
as long you have the proper records in order beforehand.
How Will the Audit Be Done?
It is
necessary for the auditor to ask questions about your records
and business operations. If you cannot be present, it is
extremely important for someone to be available that is
familiar with the specifics of your entire operation and the
job duties of all employees. If you direct the auditor to an
outside accountant, he or she will obtain as much of the
necessary information from them as possible, but will likely
still have to speak with you for additional information.
Frequently Asked Questions
Q:
What gives you the right to look at my books and records?
A: Your insurance policy is a legally
binding contract between you and your insurance carrier. One
of the conditions of the contract states, "You will let us
examine and audit all of your records that relate to this
policy."
Q: I work alone. The auditor
has requested payroll records and since I have no employees, I
have no payroll records. Is the audit still
necessary?
A: Yes, the auditor will need
to verify that you do indeed work alone. To do that, he/she
will look at disbursement records, check stubs, or possibly
income tax returns. The auditor is also required to look for
and review your relationship with any independent contractors
who you may have used during the policy
period.
Q: I canceled my workers' compensation policy and no
longer have insurance with your company. Do I need to be
audited?
A: Yes, remember the purpose of
the audit is to review your actual business activity for a
previous period, during which your policy with our company was
still in force.
Upon completion of your payroll audit, be sure to meet with
the auditor to review your audit report. By addressing your
questions then, you will avoid any unnecessary surprises when
you receive your final audit invoice. If your premiums have
been under-reported, you will receive an invoice for the
amount due; if you have overpaid, a credit or refund will be
issued.
It is important to know that deliberate under-reporting of
payroll is considered insurance fraud and can be prosecuted to
the fullest extent of the law. If you have any questions or
encounter any problems during the audit process, please
contact our office at (800) 311-0997. |
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