WORKERS’ COMP AUDIT PREPARATION
Prepare for Your Workers’ Comp Audit Before Problems get Expensive
Workers’ compensation audits can expose missing certificates of insurance, incomplete subcontractor documentation, payroll classification issues and other records that may affect your final premium. Excel Consulting helps contractors review the accounting and subcontractor records behind the audit so problems can be identified and addressed before they become expensive surprises.
The Audit Is About More than Employee Payroll
A workers’ compensation audit is designed to compare the information used to estimate your premium with what actually happened during the policy period.
For contractors, that review can extend beyond employee payroll. Auditors will also look closely at payments made to subcontractors, certificates of insurance and other documentation used to determine whether people who performed work should be included in the workers’ compensation exposure.
When payroll records, subcontractor payments and supporting documentation do not line up, the audit may lead to additional questions—and potentially additional premium.
BEFORE THE AUDIT
Know What the Auditor Is Going Require
You can have perfectly reconciled books and still run into a costly audit problem if payroll classifications and subcontractor records are incomplete.
Audit Preparation Should Include:
- Reviewing employee payroll and classifications
- Reviewing payments made to subcontractors
- Identifying missing certificates of insurance and collecting them from subcontractors
- Obtaining Rejection of Coverage forms for eligible subcontractors
- Confirming that coverage dates correspond to when work was performed
- Organizing supporting records for the audit
Find the Gaps Before the Audit
If you cannot document how workers and subcontractors were covered during the policy period, the auditor may have to treat that exposure differently than you expected.
The goal is to find and fix documentation problems before they turn into audit questions—or additional premium.
Need Help Preparing for Your Audit?
Have Excel Consulting Review the Records Before You Submit Them
Excel Consulting can review your payroll, subcontractor payments, certificates of insurance and supporting documentation before your workers’ compensation audit is submitted. The goal is to identify missing information, inconsistencies and potential issues while there is still time to address them.
SUBCONTRACTOR PAYMENTS & PROOF OF COVERAGE
Paying a Subcontractor Doesn’t Automatically Remove Workers’ Comp Exposure
For contractors, one of the biggest audit issues can be payments made to subcontractors. Depending on state rules, the subcontractor’s status and coverage in place, an auditor will look at who was paid and whether there is documentation showing that appropriate workers’ compensation coverage was in place while the work was being performed.
A certificate of insurance sitting in the file today is not enough if it does not cover the period when the subcontractor actually worked for you.
When reviewing subcontractors, Excel Consulting will look at:
- Payments made to subcontractors during the policy period
- Dates the subcontractor performed work
- Workers’ compensation certificates, policy dates and gaps in coverage
- Missing or expired documentation
- Whether the subcontractor had employees or lower-tier subcontractors
Coverage Dates Matter
The question isn’t simply, “Do I have a COI?” It’s, “Can I document that coverage was in place when this subcontractor performed the work?”
A clean subcontractor file can make the difference between explaining the exposure and being charged for it.
SOLE PROPRIETORS & REJECTION OF COVERAGE
A Sole Proprietor May Be Able to Reject Coverage — But Eligibility Matters
Not every person who calls themselves a sole proprietor is automatically exempt from workers’ compensation requirements.
Depending on the state, business structure and how the work is performed, certain business owners may be allowed to reject or elect out of workers’ compensation coverage. The documentation required to prove that rejection also varies by state.
For contractors, the important question is not simply whether a subcontractor says they do not carry workers’ compensation. It is whether they are legally eligible to reject coverage and can provide the documentation required by the state and the insurance carrier.
When Reviewing a Rejection of Coverage, the Auditor Will Look At:
- The subcontractor’s legal business structure
- Whether the individual is actually an owner of the business
- Whether the state allows that type of owner to reject coverage
- Whether the required rejection or exemption documentation was properly completed and filed with the state
- The effective dates of the rejection
- Whether the subcontractor had employees during the period
- Whether other workers or lower-tier subcontractors performed work
Colorado Contractors: WC43 Matters
Colorado allows certain qualifying business owners to reject workers’ compensation coverage, but the rules depend on business structure and ownership. Colorado law also makes clear that rejecting coverage for an owner does not eliminate the business’s obligation to provide workers’ compensation for employees who must be covered.
A rejection of coverage applies to the eligible owner — not automatically to everyone who works for that business.
If a sole proprietor later hires employees or brings other workers onto the job, the rejection that applies to the owner does not automatically resolve the workers’ compensation exposure created by those additional workers.
The audit question is not simply, “Did they reject coverage?” It’s, “Were they eligible to reject it, and did the rejection actually apply to the people performing the work?”
STATE-SPECIFIC WORKERS’ COMP GUIDANCE
STATE-SPECIFIC WORKERS’ COMP GUIDANCE
Workers’ compensation requirements, owner exemptions, subcontractor coverage rules and audit documentation vary by state. Excel Consulting works with contractors in selected states and develops state-specific guidance to help businesses understand the records and documentation that may be reviewed during a workers’ compensation audit.
Colorado
Rejection of coverage, WC43 documentation, subcontractor COIs and audit preparation.
Colorado Workers’ Comp Guide →
Wyoming
Rejection of coverage, WC43 documentation, subcontractor COIs and audit preparation.
Wyoming Workers’ Comp Guide →
Arizona
Add context to your column. Help visitors understand the value they can get from your Arizona Workers’ Comp Guide →
Pennsylvania
Owner exemptions, subcontractor coverage and contractor audit documentation.
Pennsylvania Workers’ Comp Guide →
Maryland
Workers’ comp coverage, business-owner exemptions and subcontractor audit
Maryland Workers’ Comp Guide →
Virginia
Coverage requirements, contractor/subcontractor issues and audit Virginia Workers’ Comp Guide →
PAYROLL CLASSIFICATIONS
The Payroll May Be Right — but the Workers’ Comp Classification is Wrong
A contractor can have perfectly accurate payroll and still run into workers’ compensation audit issues if employees are assigned to the wrong classification.
For construction companies, the type of work an employee performs can affect the workers’ compensation class code and ultimately the premium. Office staff, field employees, supervisors or project managers, and employees performing different types of construction work may require different workers’ compensation classifications based on the work they actually perform.
Accurate Payroll Doesn’t Mean Accurate Classification
The employee may have been paid exactly what they were owed. The audit question is whether that payroll was assigned to the correct workers’ compensation exposure.
Before the audit, Excel Consulting can review:
- Employee names and actual job duties
- Workers’ compensation class codes
- Payroll assigned to each classification
- Employees who perform more than one type of work
- Office versus field classifications
- Changes in duties during the policy period
- Payroll reports used for the audit
- Whether the classifications appear consistent with the work actually performed
ALREADY RECEIVED AN ADDITIONAL PREMIUM?
An Audit Result May Not Be the End of the Story
If a workers’ compensation audit results in additional premium, it may be worth reviewing why the additional charge was assessed before simply accepting it.
Sometimes the issue is not that coverage did not exist—it is that the documentation needed to prove the coverage was missing, incomplete or unavailable when the audit was performed.
Depending on the carrier, state rules and the circumstances of the audit, additional documentation may be submitted after the original audit for review.
Excel Consulting Can Help Review:
- Which payroll or subcontractor amounts generated additional premium
- Whether certificates of insurance were missing from the original audit
- Whether documentation can establish coverage for the period when work was performed
- Whether owner rejection or exemption documentation was available and applicable
- Whether subcontractor payments were treated differently than expected
- Whether employee classifications contributed to the adjustment
- What supporting records may be available to clarify or challenge the audit result
Don’t Assume the Additional Premium Is Final
If documentation existed during the audit period but wasn’t provided—or can now be obtained—it may be worth asking whether the audit can be reviewed or corrected.
Excel Consulting can help organize the records and documentation needed to support a request for review.
Frequently Asked Questions
What does a workers’ compensation auditor usually review?
A workers’ compensation audit may review employee payroll, workers’ compensation classifications, subcontractor payments, certificates of insurance, owner exemption or rejection documentation and other records used to determine actual exposure during the policy period.
Why are subcontractor payments reviewed during a workers’ comp audit?
Auditors may review subcontractor payments to determine whether the subcontractor carried appropriate coverage while the work was being performed. The rules vary by state, so documentation and coverage dates matter.
What happens if I am missing a subcontractor’s certificate of insurance?
Missing documentation can create additional premium as ultimately you are responsible for coverage or proof of coverage. If a certificate or proof of rejection of coverage can be obtained for the period when the work was performed, it is worth providing that documentation to the auditor or carrier so you will not be charged.
Can a sole proprietor reject workers’ compensation coverage?
In some states, such as Colorado, certain qualifying business owners may be allowed to reject or elect out of coverage. Eligibility, required forms and documentation vary by state. Simply calling someone a sole proprietor does not automatically mean they are exempt from workers’ compensation requirements.
Can you help prepare my workers’ comp audit before I submit it?
Yes. Excel Consulting can review payroll classifications, subcontractor payments, certificates of insurance and other supporting documentation before the audit is submitted to help identify missing records, inconsistencies and potential questions.
What if my audit has already resulted in additional premium?
It may still be worth reviewing why the additional premium was assessed. Depending on the insurance carrier, state rules and circumstances, there may be an appeal period, where additional documentation may sometimes be submitted for review after the original audit.
Do workers’ compensation audit requirements vary by state?
Yes. Workers’ compensation laws, owner exemptions, rejection-of-coverage rules and treatment of subcontractors vary significantly by state. Excel Consulting provides state-specific guidance for contractors in selected states.
DON’T WAIT FOR THE AUDITOR TO FIND THE PROBLEM
Get Your Records Reviewed Before Your Audit
Workers’ compensation audits can become expensive when payroll classifications, subcontractor records or proof of coverage are incomplete. Excel Consulting can help review and organize the records behind your audit so you understand potential issues before the audit is submitted.