Workers’ compensation insurance is mandatory in most states if a business owner has employees. It’s also proof that you — the business owner — cares about the well-being of your workers and wants to keep them protected.
Each state has different requirements for workers’ compensation insurance, but many of them have at least one thing in common: a workers’ compensation audit is required to make sure you pay the right amount for your coverage.
Workers’ compensation is one of the most complicated and regulated types of business insurance. It’s designed to protect you and your employees from expenses related to workplace injuries.
Read on to learn more about the audit process.
Why is a Workers’ Compensation audit needed?
When you purchase workers’ comp, you are asked to share an estimate of your total payroll and the primary types of work your employees will do while the policy is active. Insurance providers use this estimate to help determine workers’ comp insurance costs.
However, predicting a year’s payroll is hard. Businesses are constantly changing and adapting.
It can be tough to know exactly how much will be spent on each employee during the policy term, which is typically one year. The business could experience rapid growth, or things could not go quite as planned.
That’s why some state regulators require an audit after the first year of your policy or if you cancel it (and in states where NEXT offers workers’ comp, this is always the case).
A workers’ comp audit makes sure that you’re paying the right amount for coverage. It replaces your estimate with your company’s actual payroll and class codes (an insurance industry term that classifies different job duties and their exposure to risk).
If the original payroll estimate matches the actual payroll, you won’t have to adjust your payment — although you’ll still have to complete an audit. But if the actual payroll is greater than what you estimated, you will have to pay more for coverage.
What to expect with a Workers’ Comp audit at Next Insurance?
The word “audit” can strike fear into the heart of almost anyone. But a workers’ compensation audit with NEXT takes the sting out of the word — and the process.
We do everything we can to make audits as simple and straightforward as possible. We know they’re typically cumbersome and tedious so we’ve streamlined our system to make it as painless as possible.
And, in most cases, you can see an audit result in minutes.
NEXT has made it possible for you to complete an audit directly in your customer account. That’s right; no more lengthy phone calls.
You can do the audit whenever you want (once the audit is open, which is after the policy is cancelled or has expired). Or, if you have an insurance agent, they can also login to the portal and conduct the audit on your behalf.
While the majority of audits can be completed online, if we require document verification or there is a large difference in premium, you will need to send in the documents via email to email@example.com.
Note that the exception to this is Florida, where companies with premiums of over $10,000 and some businesses in the construction industry are required by Florida state law to have an in-person audit. Afirm, a third-party vendor, conducts these physical audits so you should expect to receive messages from them. Due to COVID-19, physical audits are currently being completed virtually.
It’s helpful to have your tax documents (such as a W-2 or 1099) on hand prior to completing this process. You’ll need to reference it during the audit so that your payroll is accurate. When it’s time for you to complete your workers’ comp audit, here’s what you can expect:
When your policy reaches its one-year anniversary or is canceled, we’ll send you an email with a reminder to go into the portal and enter the latest workers’ comp and employee information.
You’ll need to answer questions about employees' activities and their payroll during the policy period.
When you enter data into the portal, the system will ask for updated payroll information, including payroll details for you, your employees, subcontractors and partners.
You should already have the certificates of insurance for all subcontractors who performed work for you, so we can verify that they have their own workers’ compensation insurance. We only ask for COIs for subcontractors who were marked as being insured in the audit questionnaire.
If your subcontractors don't have their own workers’ comp insurance, their compensation will be included in your payroll.
After you complete the online process, we may ask you to submit some information to verify your payroll. But don’t worry. You’re already required to submit everything we might ask for to the state and federal government for tax purposes, so you should already have the information on file.
Documents we may ask you to provide include either employee check stubs or records from a payroll service if you use one, federal tax returns, and state-specific quarterly unemployment insurance filings. Here is the full list of documents we may ask for:
- Federal 1099, W-2, and W-3 transmittals
- Federal Profit and Loss From Business Schedule C (Form 1040)
- Federal Employer’s Quarterly Tax Return (Form 941)
- Federal Employer’s Annual Unemployment (FUTA) Tax Return (Form 940)
- Federal Employer’s Annual Tax Return (Form 944)
- COIs for subcontractors
Updated premium calculation
After we verify the information, we’ll use your updated activities and payroll to adjust the cost for the policy being audited. You should be able to see any adjustments directly in the portal within minutes — unless you were asked to submit verification documents, which will take a little longer.
Once a new premium is calculated, we’ll send you an email with an audit summary that explains whether the premium has increased, decreased or stayed the same. If there are no changes, there’s nothing left for you to do.
If the new premium is higher, you’ll have to pay the difference. But the payment won’t be due right away. We give 30 days’ notice so that you can prepare.
At the end of 30 days, we’ll charge the credit card we have on file for your account. If the new premium is lower, we’ll issue a refund to the credit card we have on file within 30 days of sending the audit summary.
You will receive an email notification that the audit is complete. We'll also provide updated policy documents for your records.
If you have questions about the audit summary and final premium, you can call us at (855) 222-5919 within 30 days of receiving the summary email. Our team will work with you to answer questions and resolve any issues before any credit card charges or refunds are applied.
What happens after a Workers’ Comp audit?
If your overall payroll is less than what was estimated, the premium decreases and the insurance company owes you a refund. But if the actual payroll is greater than what you estimated, you will have to pay more for coverage.
It’s not unusual for a premium to change after an audit is complete. Common reasons a premium may be different post-audit include:
- Your business expanded and you hired more people, which increased payroll payments
- Your payroll decreased because some employees are no longer working for you
- There were changes in job responsibilities for you or your employees
For example, suppose you are a contractor and you estimate that you’ll pay your residential remodeling employees $100,000 while your policy is active. Then your business experiences unexpected growth, and you end up paying your employees much more than expected.
In this case, your workers’ comp costs will likely increase after an audit because your actual payroll does not match your estimate.
To avoid any surprises, you can update your payroll estimate throughout the policy term so it is accurate. This can be done in a few minutes online by logging into your online account with NEXT Insurance.
How NEXT helps business owners find Workers’ Comp coverage
If you are looking for workers’ comp insurance for your business, we have the coverage you need. At NEXT, we’re dedicated to helping small business owners and self-employed professionals find the right policy to protect their business at an affordable price.
No matter how careful and safe you and your employees are at work, there's always the potential for accidents to happen.
If you have questions at any time, our U.S.-based insurance advisors are standing by to help.