What is a premium audit, and when do they occur?

Workers’ compensation premiums are based on the type of work being done – called a classification – and the amount of wages or payroll for your employees and uninsured subcontractors. When you purchase workers’ compensation coverage, you tell us what kind of work you do and estimate the amount of payroll you expect to have. A premium audit is an examination of your business operations and records used to determine your actual payroll and premium for the coverage period being audited, and to determine proper classification. LCI performs an audit on each workers’ comp coverage period upon expiration or cancellation. 

How should I prepare for a premium audit?

Having the appropriate records available for the audit will allow the auditor to complete the process smoothly and accurately. Two types of documents are required to complete your audit: A primary source showing payments made to labor during your coverage period and a secondary source, such as a tax document that is used to verify the primary source. The primary source document should match as closely to your coverage period as possible. It is acceptable to deviate slightly from the coverage period. The secondary source documents may not line up with your coverage period. If your coverage period falls in the middle of the month, simply provide the most recent four quarterly (or annual) tax reports that most closely aligns with your coverage period.

For physical audits, you will be contacted by letter or phone to schedule a date for the audit appointment, and you will be requested to provide certain records. For self-reporting audits, a form will be sent to you to fill out and return with the appropriate documentation. Some accounts that meet certain criteria may be eligible for a telephone audit. In all cases, accurate records that are complete and well organized make the audit process much easier. Your advance preparation will help the auditor quickly find what he or she needs and will require less of your time for questions and/or clarifications during the actual audit. Payroll records used for an audit should be organized to clearly show payroll by:

· Coverage period

· Names of workers

· Job duties of workers (List each type of job separately, i.e. clerical, sales, etc.)

· Separating overtime from regular pay

· Insured and uninsured subcontractors (if subcontractors are insured, please provide their certificates of insurance showing they had workers compensation insurance covering the dates they were paid during your policy period)

What if I don’t agree with my audit?

You may dispute the audit in writing with documentation that supports your reason for contesting it. A letter which states you are disputing the audit without backup documentation will be denied.

Chris Messenger can be reached at chris@lciwc.com or 985-612-1241.

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