Have you noticed that the more often you do something, the more naturally it comes to you? You remember to get it done in that small time frame, and you remember exactly how to do it. This isn’t quite true with things that you don’t have to do as often.
Plenty of people set aside an afternoon each week to get caught up on their cleaning. However, if you didn’t get reminders in the mail to renew your driver’s license every few years, would you remember to do that?
If your small business is going through a workers’ compensation audit, you might be feeling a bit stressed out. These audits only happen once a year, so it can be easy to forget some of the steps or to let the due date sneak up on you. There comes a time when you’ll wonder if a payroll service can help.
At CSI Accounting & Payroll, we’ve been meeting with small business owners for over 50 years. We know that having one less thing to worry about each year is a bigger deal than it seems.
Other small business owners who have asked us about workers’ compensation audits wanted to know more about:
- What is a workers’ compensation audit?
- Why do these audits happen?
- What do you do when you’re going through one?
- How can a payroll service help you through one?
What is a Workers’ Compensation Audit?
When you hear the word “audit,” you may associate that with a tax audit from the IRS, but not all audits are the same.
A workers’ compensation audit is a review of what you paid out in payroll for the policy year compared to the amount that you estimated to your workers’ compensation insurance agent. The insurance carrier needs to know that you, the policyholder, have paid all of your premiums in full.
If you overestimated the amount of payroll you paid out for the year, you’ll get a refund of your overpaid premiums back from your insurance in the form of a check. If you underestimated, you’ll be expected to pay the remaining premiums you owe.
Why Do Workers’ Compensation Audits Happen?
There is nothing that you did to cause a workers’ compensation audit, other than holding workers’ compensation insurance. Most states, including Minnesota, require small businesses to carry this type of insurance. If you have coverage, then annual audits are not completely preventable.
However, CSI Accounting & Payroll offers “pay as you go” workers’ compensation, which is a relatively new option that uses the payroll data to calculate the premiums owed each payroll.
Since the exact amount is collected each payroll with “pay as you go,” there isn’t much to do when it’s time for the audit so it generally doesn’t involve the business owner. This also means there’s no need for you to adjust payments for overestimating or underestimating your annual wages paid.
What Do You Do When You’re Going Through a Workers’ Compensation Audit?
When you go through a workers’ compensation audit, the process might vary a bit from carrier to carrier.
To verify the amount that you paid out in payroll, you need to send them what each employee earned during the policy period. This can be done in a few different ways.
First, send your auditor a payroll summary by employee for the policy period and tax filings for the quarters that most closely align with the policy period. They should show the same or similar amounts.
There are two tax filings that auditors will ask for to show your employees’ reported quarterly earnings: a wage detail (state unemployment) or a federal tax reconciliation report (Forms 941.) CSI uses 941s since they don’t contain extra employee details, such as social security numbers.
Additionally, you need to define your employees’ job duties because roles are categorized by risk level for workers’ compensation premium rates. You may want to set up departments based on duties in your payroll system and submit payroll summaries of each department to your auditor.
There’s also information that you’ll need from your contractors (1099s), who are not your employees. You’ll need their certificates of insurance coverage to ensure they have their own workers’ compensation insurance. This lets your carrier know not to charge you additional premiums to cover them.
How Can a Payroll Service Help You Through a Workers’ Compensation Audit?
While this isn’t standard for other payroll providers, CSI has a secure online portal that lets you pull your payroll reports and tax forms for free at any time. It’s extremely helpful to avoid waiting for business hours to speak to a representative when the due date is approaching quickly.
Another option that CSI offers is conducting the audit for you for an additional fee. We can do either of the following options:
- Enter the information requested using an auditor’s online system.
- Collect your information and email it securely to the auditor.
- The auditor can come to our office to work with us directly.
Avoid Workers’ Compensation Audit Headaches Next Time
Since workers’ compensation insurance audits only happen once per year, it’s probably been a bit of extra work to remember everything you need to do to meet that rapidly-approaching deadline.
Now that you have a better understanding of what these audits are and why they occur, you can be less stressed and more prepared for your next one.
Next time, you should partner with a payroll service that lets you access your own reports and forms at any time and for no additional cost. If your payroll service provider also offers “pay as you go” workers’ compensation to take you out of the audit process like CSI does, that’s even better!
If you’d like to have a conversation about how CSI Accounting & Payroll can make this annual task easier or remove it from your plate entirely, click the button below to schedule a free consultation.
Otherwise, you may be wanting to learn more about if your business is the right fit to work with CSI.