Dealing With Insurance Audits A Key To Avoiding Future Problems

Nikalas Oates  –  Producer

After the policy year is complete, your insurance company “audits” the policy to verify if the payroll data, job classifications, and losses are correct. When an insurance company audits a policy, they are typically looking for standard information to review and update. Most of this information is required to ensure that the insurance company is getting the appropriate premium for each account.

Despite the negative connotations of the word “audit”, the insurance company is doing nothing wrong when they perform their audit. They are simply verifying payroll, making sure they have the correct job classifications, and making sure that each classification has the correct payroll assigned to it. If sub-contractors are used, the insurance company will verify that these sub-contractors have worker’s comp coverage. If they do not, it is added to our clients’ workers comp, not the sub-contractor’s.

Problems arise when companies are ill-prepared for the audit. In instances like these, companies are just answering or reacting to the auditor’s requests for information. We believe that our clients should prepare for the audit by verifying payroll, job classifications, and certificates of insurance for any subcontractors. After this is complete, our clients should be reviewing a series of credits or discounts that they may be eligible for.

Instead of treating the auditor as the grand inquisitor, we think you should turn the tables on the insurance auditor. Instead of them asking you questions and looking for potential increases in premium, you should be asking them questions about how you can get reductions in your premium. We will help you ask the right questions and do the right research before the audit meeting.

Beyond verifying and having proof of insurance for all of your sub-contractors there are a number of other ways to reduce your audit costs. One way to do this is to verify your payroll numbers and make sure they are correct for each job classification. There is a big difference in costs between different job classifications so if this is wrong it can be very costly for your company. Another cost-reduction measure that owners can take is capping their payroll. This means you need to reverse out any overage for all owners. Overtime pay is a costly area for many of our clients and because you get to “normalize” all overtime to straight time, this can be a simple way to save a substantial amount of money.

There are plenty of other savings measures that apply to different types of businesses and industries. Make sure you have a really good grasp on all the key information prior to the auditor arriving.

We also encourage you to adapt your payroll data to your workers’ comp needs. Oftentimes our clients are able to list a job classification on their payroll records so they can easily pull data by rating category. Easy access to this data can make a substantial difference in what you’ll pay for worker’s comp. Can you quickly identify overtime vs non-overtime pay? How about holiday pay and bonus pay that could also qualify for credits? If you can’t quickly find this information, it’s time to adapt your payroll data.

Many business owners don’t realize that the audit process is a great way to verify you are being charged only what you should be charged. This can only happen if you know what the rules of the game are and a good worker’s comp program will help you with this.

What Records Do I Need to Prepare for a Workers’ Compensation Audit?

Ask what you need to provide. You shouldn’t volunteer more information than requested. For this reason, you should ask what documents the auditor needs to see and then gather those documents ahead of time.

Collect payroll records. The auditor will probably request payroll records, so get these in order. Generally, you must provide copies of the following:

  • payroll journal and summary (payroll includes salaries, wages, commissions, overtime pay, and bonuses)
  • state unemployment reports
  • individual earnings records
  • federal tax reports (941 reports)
  • your check book
  • all overtime payments (broken out by employee)

Pull together your employee records. You’ll probably also need to provide de­tailed employee records, which you should pull together before the auditor arrives. Find the following:

  • number of employees
  • hours, days and weeks worked during the year
  • detailed explanation of job duties for every employee
  • breakdown based on dollar amounts if an employee works in more than one classification code

Find your cash disbursements. You’ll need to present this information to the auditor, so find it ahead of time. Double check to make sure all numbers are accurate:

  • payments to any subcontractors and independent contractors
  • materials
  • casual labor

Gather your certificates of insurance. De­pending on your state, you may be charged workers’ compensation premiums for inde­pendent contractors and subcontractors. You’ll want current certificates of insurance for every subcontractor you used during the policy period.


Should you have any questions about this article – or any insurance matter – please feel free to contact me at or call me at 508-753-6353 Ext. 114.

Take control of your coverage and lower your premiums.