Workers’ Comp Audit Via Payroll System
The purpose of workers’ compensation is to protect the employees from the expenses of lost income or medical care if they get injured at work. The workers’ compensation cost is related directly to payroll. Different classifications are used in different kinds of work (depending on the chances of injury). Each classification has specific rates. These rates vary from state to state because of different loss experience. These rates are same within the state.
Exposures in Workers’ Comp
The workers’ compensation premium is determined ultimately by company’s exposures. The two basic types of exposures for this policy are remuneration (payroll) and total cost of the uninsured contractors. When the policy is set up first the policy premium is established on the estimated exposure. This estimate should be the best plan for the coming policy period and should not guess or made up by the company’s insurance agent. This is the reason of why the audit is being requested.
The actual exposure during a policy period is determined soon after the policy expires by the audit. Every business needs a perspective of an independent, unbiased review of the workers’ compensation premiums. Epay Payrolls’ vast experience in the matter of workers’ compensation premium indicates that nearly 70% of all the employers are overpaying or have overpaid the cost of workers compensation premium. That’s might because the system that determines the premium is extremely complex and involves many things including insurance agents, underwriters of the insurance company, and rating bureaus.
For example, to establish suitable classifications with many other unique business classifications, there is substantial opportunity for the low rated classification which are usually determined by the rating bureaus and underwriters of insurance company while the agents have less control of the applied classifications. Annual payroll audit is conducted by the payroll auditor who is either the insurance carrier employee or the insurance carrier contracted them to perform the audit.
A significant factor in getting the correct pricing is the year-end audit policy. The purpose is to determine an estimated payroll from the start of the policy year with an actual payroll at the end of the year. For example, the estimated payroll would be $ 1,000,000 in the upcoming year and the actual payroll was $1,200,000 and the company paid the premium based on that estimated payroll, then the audit company makes backdated adjustment, in this case the additional payroll of $200,000 would be account as an adjustment.
Audit through Payroll
Accurate payroll estimate is the best way to prepare for the workers compensation audit. Every estimated annual payroll and work classification should be reviewed carefully with the agent sub-contractor/employee prior to the renewal. For instance, payroll can be volatile either down or up, especially during the summer, fall, and spring, depending on many factors like weather etc. these estimates may be changed during the course of policy year to reflect significant decrease or increase in the actual payroll, therefore changing the premium paid during course of policy year. This helps to avoid the large premium bills, premium audits or refunds. Epay Payroll’s has friendly and knowledgeable staff to help businesses to perform their audits.