Your Workers Compensation insurance renews and you receive the letter informing you it’s time for the prior term’s audit.
Initial premium is based on estimated payroll. At the end of the year the company needs to determine actual payroll, including casual labor and uninsured subcontractors. If the actual is less than the estimate you get a refund. If the actual is greater than the estimate, you owe the difference.
Should you refuse, it’s rough: the carrier issues a high “estimate” with premium due. If you do not pay the estimated additional, your policy gets cancelled and the Department of Industrial Accidents may issue a Stop Work Order. You may also have an uninsured loss and then have to pay for medical expenses and lost wages out of pocket, plus be subject to a fine.
To prepare for the audit try to have:
- Payroll records
- Federal 941 Tax Returns (most recent four quarters)
- 1099 Tax Forms
- Federal Tax Return including Profit & Loss section (1040 Schedule C, etc.)
- General ledger or checkbook
- Certificates of Insurance from subcontractors
You will receive a Final Audit Report from the carrier. If money is owed and you disagree you can file a dispute. The payment due date will be suspended until the dispute is settled.
Here’s a chalkboard video that summarizes all this: