Workers’ Compensation Audit Shocks: Steer Clear with These 8 Pro Tips

Let’s face it, insurance dealings aren’t exactly known for being enjoyable. As an agent, I strive to make things smoother, but workers’ compensation audits can still deliver some nasty surprises. Buckle up, because I’m sharing the top 8 audit shocks and how to avoid them.

Shocker #1: Wrong Job Code – Boom! Higher Rates

Imagine paying low-risk rates for years, only to have an auditor reclassify your company as high-risk at the audit. This happened to an after-school program initially coded as “school,” then switched to the pricier “daycare” category. Ouch!

Solution: Double-check your classification with official guidelines and justify it using clear documentation.

Shocker #2: Surprise! Uninsured Subcontractors

You meticulously collect General Liability certificates, but whoops! No workers’ compensation proof from subcontractors. Turns out, some states don’t require it, leaving you with a hefty bill to cover their uninsured workers.

Solution: Play it safe. Require all contractors, regardless of state mandates, to carry workers’ compensation.

Shocker #3: Payroll Explosion – Double the Premium?

Budgeting is tricky. Your $200,000 payroll estimate turned into a booming $400,000 reality. Guess what? Your premium doubles.

Solution: Consider flexible “pay-as-you-go” options or budget for potential premium increases as your business grows.

Shocker #4: Hidden Remuneration – It All Counts!

Stipends, housing allowances, even discounted rent for staff – these might not be on your payroll statement, but they count for workers’ compensation. Sober homes offering rent discounts, vocational programs with stipends, churches with housing allowances for pastors – beware!

Solution: Include all forms of “remuneration” in your projected payroll to avoid surprises.

Shocker #5: Employee Classification Shuffle – From Clerk to High-Risk?

Remember those mental health program staff classified as “clerical”? An auditor bumped them to the pricier “social services” category due to client interaction. Thankfully, negotiation landed them in the cheaper “doctor’s office” group. Whew!

Solution: Ensure your classifications align with official definitions to avoid costly reclassifications.

Shocker #6: Paperwork Panic – Documentation Disaster!

Ignoring the auditor’s document requests for months? Not a good idea. They’ll close the file, hit you with a non-compliance fee, and jack up your premium by 40%. Yikes!

Solution: Be prepared! Know what documents are needed for the audit and keep them readily available.

Shocker #7: Business Pivot – Insurance Pivot Needed Too!

Suddenly in-home support services aren’t your thing anymore, and group homes are the new focus? Great! Just remember, this business shift might mean a whole new insurance classification (and cost) too.

Solution: Anticipate the impact of business changes on your insurance needs and adjust accordingly.

Shocker #8: Owner on the Payroll? Did Someone Forget?

Starting the year thinking your owner is excluded from the policy? Oops! Missing paperwork leaves you on the hook for thousands at audit time.

Solution: Clarify owner inclusion/exclusion right at the beginning of the year and ensure proper documentation is in place.

The Bottom Line: Worker’s compensation audits can sting, but preparation and knowledge go a long way. By understanding these potential pitfalls and taking proactive steps, you can avoid the pain and focus on running your business smoothly.