13 Jul Compensation Audits…Help!
Being pleasant and helpful, along with knowing the ins & outs of the audit process, will go a long way to ensure that your pay as you go worker’s compensation audit is accurate, fair and free of any surprises.
The auditor’s responsibility is not only to determine that all employees have been correctly classified, but also to verify the amount of payroll exposure that is subject to workers’ compensation. It is always advisable to have the audit performed on your premises where the payroll is maintained, rather than at an accountant’s office where the chance of misinformation slipping into the numbers could be increased. Inaccurate numbers are almost always higher than directly provided accurate numbers.
To properly classify the employees, the auditor must understand as precisely as possible what the employees do in their day-to-day duties. There are occasions when the risk manager or client services representative should be available, in case there is a question regarding the exact nature of the business related to one of the client companies. Generally, they will have been out to visit your clients and should be able to describe their duties. This attention to detail could save you thousands of dollars, over time, in the overall running of your business.
It would benefit all business insured’s to have at least one current copy of The National Council on Compensation Insurance’s Scopes of Basic Manual Classifications. This publication, which is updated quarterly, is the “Bible” of workers’ compensation class codes. It is arranged numerically but can also be referenced alphabetically. It provides a complete description of each N.C.C.I. classification, detailing the duties of each job description. It also contains a cross reference for similar type class codes. The last section of this manual provides the various State Special Classifications that are only applicable in certain states. This book is probably the wisest investment that can be made in the management of your workers’ compensation program.
The NCCI’ s Customer Service Center may be reached:
• by phone at #800-NCCI 1-2-3 (#800-622-4123), Monday-Friday 8:00 AM – 8:00 PM (eastern standard time) or
• by e-mail to email@example.com.
Please note that the Scopes Manual is only available from NCCI, and that all inquiries regarding ordering information should be directed to them exclusively.
The Process of the Audit – The auditor will generally perform the audit using a laptop computer.
He will request all payroll records including 941’s, DOL 4’s, payroll journals, weekly and monthly payroll reports, federal 1099 and 1096 tax reporting forms,
Cash disbursement journal,
Payment to any subcontractors,
Certificates of insurance for any subcontractors,
Summarized overtime and tips
Sales records along with balance sheets and
Profit and Loss statements.
Having your records entered onto spread sheets can simplify your bookkeeping, and be a time saver to the auditor. It would behoove you to prepare early.
When the audit has been completed, a copy of the audit worksheet should be reviewed for accuracy:
• Verify the gross payroll numbers.
• Verify that the proper overtime adjustments were made (one-third of pay should be removed from overtime and one-half from double time).
• Verify that limitations on executive officers of corporations have been allowed.
• Does it show charges for independent contractors who actually had their own coverage?
• Do the classifications seem correct?
• Did the auditor take the time to understand the duties of the employees?
If you feel that an error has been made in your audit bill – and we have found many – challenge it! Build a case, present your evidence and request a correction. If you cannot resolve the dispute with the carrier, write to your state insurance department. Often, they have a consumer affairs department that will mediate your dispute. Avoid paying the disputed portion of your bill until the issue is resolved or you will lose leverage. It is considerably easier to negotiate for a lower bill than it is to get the carrier to return premium. The following chart is a simple guideline regarding remuneration:
In essence, you should be withholding workers’ compensation on the items under “Remuneration included…”
Remuneration included in workers’ compensation
• Regular pay – salary and hourly
• Overtime pay – treated as straight time.
• Holiday, vacation and sick pay.
• Payments by employer – contributions required by law to statutory insurance or pension plans such as Social Security, which would otherwise be paid by employee.
• Pay for piecework, incentive plans and profit sharing plans.
• Payments to employees for hand and power tools supplied by employees.
• Rental value of housing provided to employees.
• Value of other lodging provided by employer.
• Value of meals provided by employer.
• Value of store certificates, merchandise or credits given to employees by employer.
• Expense reimbursements to employees to the extent that an employer’s records do not substantiate that the expense was a valid business expense.
Remuneration excluded from workers’ compensation
o Tips and gratuities.
o Payments by employer to group insurance plans.
o Value of special awards paid for invention or discovery.
o Dismissal or severance pay except for time worked or accrued vacation.
o Value of employer-provided automobile.
o Value of flight on employer owned aircraft.
o Value of employer-provided incentive vacation (contest winner).
o Employer-provided discount on property or services.
o Employer-provided ticket to an entertainment event.
o Employer payments to military reservists called to active duty.
o Work uniform allowances.
It is hoped that this information will help you get through that once-a-year task and enable you to take control of your workers’ compensation audit. Start early….