A premium audit is standard practice for insurance policyholders, and while the word ‘audit’ may sound frightening, it is nothing to be worried about! If you are expecting a premium audit soon, there’s plenty you can do to ensure you’re prepared for a smooth audit.  

What is a Premium Audit? 

A premium audit is simply an insurance audit to confirm that the correct amount of insurance premium has been paid for the year. While premium audits may be conducted in various insurance coverage types, this article discusses premium audits related to workers’ compensation. 

Some states require companies that issue workers’ compensation policies to conduct an audit annually, and some insurance companies include a premium audit requirement in their policy to ensure that the correct premium was paid.  

When a business owner purchases a policy, the premium is typically based on the company’s payroll and employee classifications, which determine the risk associated with each job. Payrolls, business operations, and job duties fluctuate over the course of the policy period, and the premium audit is used to evaluate these changes. The audit occurs at the end of the policy term so that any necessary adjustments to your premium can be made in order to ensure that it accurately reflects the exposure experienced during the policy period. In short, the purpose of a premium audit is to guarantee you’re paying the right price for your policy, which is a good thing! (Say it with me, an audit is a good thing). 

Preparing for a Premium Audit 

Once your policy expires at the end of the year, you’ll be asked to provide information to an insurance premium auditor to help determine your risk for the policy term. Keeping detailed records and documentation for all company operations throughout the year is the best way to ensure that you’re complying with workers’ comp audit requirements. The key phrase here is “throughout the year”—collecting information consistently will help avoid overwhelming yourself when it’s time to prepare for your audit. It’s typical to assign someone in the accounting department to this role, but the owner of the business will likely need to be involved in the process as well.

Your Workers’ Compensation Audit Checklist 

There are several documents you’ll be required to provide as part of your premium audit. Perhaps the most important among them are your payroll records. This should include your payroll journal and summary, a breakdown of payroll by employee class code and any overtime payroll records. It’s important to include detailed employee information, including the names, titles, job descriptions, state of employment, and compensation for all employees. For more information about workers’ compensation payroll items, click here.

In addition to payroll and employee information, you should also prepare the following:  

• Workers comp reports and/or payroll journals and/or payroll summaries 
• Federal (941) and State (SUI) quarterly tax returns that correspond to your policy period 
• List of executive officers, owners, or partners (ownership percent, amount paid, job duties, and titles) 
• List of employees that have been reported in the Clerical (8810) and/or Outside Sales (8742) classifications with a brief description of their duties 
• Access to general ledger and cash disbursement records 
• For any subcontract or temporary labor, please have certificates of insurance available for review along with the amount paid for their job duties 

Types of Premium Audits 

While premium audits are usually done in person, they may occasionally be done remotely via a secure website, mail, phone, or in person, depending on eligibility and the auditing agency. When conducting an audit online, you may be asked to provide your information via an online form. Learning how to fill out a workers’ comp audit form is simple as long as your information is organized, accurate, and easily available.  

In-person audits are more common and are conducted with a visit from an auditor. When the auditor is visiting, assign a friendly person to function as their contact. Set them up in a clean, clutter-free environment where they can work.  

Your auditor will come prepared and will likely use a workers’ compensation audit worksheet to collect important information during the audit process. This tool provides a blueprint of the data that the auditor must gather. Be sure to ask for copies of the auditor’s worksheets following the audit, as well as their business card. Your worksheets cannot be released to your insurance agent, so requesting them from the auditor is critical as it may be the only way you’re able to see them. Review them carefully for errors, and if anything is amiss, contact the auditor immediately.  

Treat the auditor courteously and make them feel like a welcomed guest. Provide them with printed copies of all your records. Your goal should be to make their job easy. Be prepared and provide direct answers to all their questions. Creating a straightforward and stress-free experience will help ensure a successful audit.  

After the audit is completed, you’ll receive a final audit invoice within 30 days. This invoice will reconcile what you’ve paid based on your policy estimates or monthly reported payroll.