For business owners, undergoing a workers’ compensation audit is a necessary but often unwelcome aspect of managing a company with employees. Unfortunately, insurance companies can occasionally make errors during these audits. Workers’ Compensation Consultants, a Missouri-based firm that specializes in guiding employers through the workers’ comp audit process, has compiled a list of the ten most common mistakes insurance companies tend to make. To avoid being saddled with an inflated audit bill, it is vital to meticulously review your audit, and you have the option to discuss it with your insurance broker.
Here is a breakdown of the key aspects to be vigilant about when scrutinizing an audit conducted by your insurance company:
- Incorrect Class Codes: Misapplication of job classifications is a frequent issue in workers’ comp audits due to the wide array of classification codes available. It is crucial to compare the current audit with your previous policies to uncover any disparities in class codes.
- Incorrect X-Mod: After the audit, your insurer uses the data to calculate your premium, factoring in your Experience Modification (X-Mod) to determine the correct rate. However, inaccuracies can arise, so it is essential to verify the accuracy of the X-Mod used.
- Subcontractors Counted as Employees: On occasion, insurers may erroneously include subcontractors as employees, resulting in an inflated audit bill. It is imperative to ensure that subcontractors are legitimate and adequately insured to prevent this error.
- Missing Premium Credits and Modifiers: Most policies include premium credits and modifiers, which can sometimes be omitted during the audit process. It is important to be vigilant for any missing credits, such as premium discounts, schedule credits, deductible credits, or state-specific credits on your audit bill.
- Absence of Audit Worksheets: If the auditor fails to provide you with the audit worksheets used to compile your payroll and other audit data, it is prudent to request them to verify the accuracy of the audit.
- Rate Changes: The base rates you are charged at the start of your policy period should remain consistent throughout the policy period. If you notice any rate changes, it could indicate an error made by the insurer.
- Payroll Classification Errors: Depending on your industry, you may or may not be permitted to split payroll between different job classifications. If the auditor claims that you cannot split classifications, even if you have done so in the past, your audit may be inaccurate.
- Unexpectedly High Premiums: If you receive a significantly higher bill after the audit, especially when your workforce has remained stable with few or no substantial claims, it may be due to auditor errors. Do not hesitate to seek clarification.
- Payroll Data Discrepancies: If there is a disparity between your payroll data and the figures in the audit, it may indicate a mistake. It is advisable to compare the audit’s payroll data with that generated by your accountant to identify and rectify any errors.
- Lack of Physical Audit: There are three types of audits—mail, phone, and physical audits. Mail and phone audits are more susceptible to errors because neither you nor your staff likely have experience in premium auditing. If you receive a substantial bill after a mail or phone audit, it may signal mistakes in the audit process.
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