Every carrier has the right to audit a workers compensation and disability insurance policy at least every three years; some policies are audited several times a year. During an audit, the employer must provide copies of canceled checks, payroll, tax filings and other relevant financial information. Employers may be penalized for not maintaining accurate and adequate records at a rate of $1,000 for each ten days that such records are deficient/nonexistent.
Because employers can only estimate the amount of payroll they may have during the forthcoming year, premiums are based upon estimated payrolls. The estimated payroll can often be either much higher or lower than the actual payroll. This results in either a higher or lower premium at the beginning of the policy period. The premium is corrected when a payroll audit is conducted. Upon completion of the payroll audit, the actual payroll figures will be used to determine actual premium and the employer will either get a refund or surcharge. Therefore, it is in the employers’ best interest to attempt to correctly forecast the amount of the payroll. Please note that if an employer intentionally initially understates payroll, it could be classified as fraud, a class E felony.
As a full service accounting firm, we take ownership of the attestation process associated with this audit requirement and complete all documentation on your behalf.