Few employers realize the importance of overseeing the workers’ compensation premium audit, which occurs at the end of each policy year to ensure you are paying the correct premium. After an audit, you could receive a surprise bill if the payroll reported (referred to as “remuneration”) is found to be inaccurate — or you could receive a reimbursement (more on that in a minute).
Many employers assume the auditor is there to ensure accuracy. In reality, auditors are there to complete the audit. Frequently contracted by the insurance carrier and often paid by the number of audits completed, they are there to get it done. This also means mistakes are frequent. The Minnesota Workers’ Compensation Insurance Association (MWCIA), the agency that issues the experience mod rating for many Minnesota employers, conducts a test audit to ensure consistency in the audit process. Unfortunately, the test audit also reveals the frequency of errors. The 2017 MWCIA test audit revealed that 67% of audits completed had errors — and errors typically benefit the carrier, not the employer.
Certain benefits and wages that should be excluded from payroll are referred to as “excluded remuneration.” Employers include excluded remuneration as payroll by mistake, and these exclusions often get overlooked by the auditor. Many other types of mistakes can inflate the work comp premium as well.
Start by asking for the auditor's worksheets after the audit is completed, a six to seven-page document that shows how the auditor calculated the numbers. Many employers don’t realize they have access to this information, allowing them a chance to check for errors and inconsistencies.
In helping our clients review their audit worksheets, we discover a variety of mistakes in the auditor’s work. For example, one client recovered $44,000 in premiums because the auditor had misclassified a job code — he designated a job in the higher risk (and more expensive) class code for “landscaping” when it should have been the lower risk code for “seed planting.” Because the “seed planting” job code was considered a lower risk, it included a lower work comp rate and decreased the premium cost significantly. Another client recently received $249,000 back in premiums because the “medical ambulance service” job code was misclassified.
With a little planning and preparation, you can significantly improve your chances of having an event-free audit, while reducing your chances of being hit with additional premium assessments.
During a premium audit, be sure to keep the auditor’s focus on the elements of your business that cast the best light on your risk factors. In doing so, it can be critical to have an experienced and knowledgeable strategic partner to help you make your case. For more information about your work comp audit, contact us.
Mark specializes in workers’ compensation in manufacturing, construction, healthcare and public sector.
Mark specializes in workers’ compensation in manufacturing, construction, healthcare and public sector. He is one of Minnesota’s 23 Certified Work Comp Advisors and named to the first agency advisory council for one of the largest self-insured funds in Minnesota. One of 33 Certified School Risk Managers in Minnesota, Mark is a long time speaker and educator on the topic of workers’ compensation. Mark works with employers to help them control and minimize the impact of claims, thus driving down the experience mod and adding to clients’ bottom lines.
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