If you have your own business, you likely know there are many regulations that you need to comply with, ranging from federal tax laws to local zoning ordinances. In California, you will also need to make sure your business complies with all the requirements of the California Labor Code, including the requirement that almost every business must carry workers’ compensation insurance covering all of their employees. In addition to complying with the law, you will need to cooperate with your workers’ compensation insurance carrier. One way you will need to cooperate workers’ compensation insurance carrier will be during a workers’ compensation audit.
Workers’ compensation insurance carriers will need to comply with their annual workers’ compensation audit. It is likely that when your policy is set to expire, you will receive a letter or a phone call informing you that it is necessary to complete a workers’ compensation audit if you wish to continue using that company for workers’ compensation insurance. Keep in mind that the letter or phone call may come from a company other than your workers’ compensation insurance provider, as many large insurance companies outsource their audit process.
In general, the audit process exists to make sure that your business still has the proper type and amount of workers’ compensation insurance. For example, if your business has grown from 50 employees to 250 employees, it is likely your payroll will increase your insurance premium. In general, auditors will request documents including tax forms, payroll records, and certificates of insurance if you have hired any subcontractors. If you are unable to provide licenses and certificates of insurance for subcontractors, your insurance company will likely charge you additional premium for subcontractors’ workers’ compensation insurance. They will also ask about job descriptions for each of your employees. One way you can facilitate the auditing process is to ask the auditor if there is a specific order in which he or she would like the papers organized.
During the audit, your auditor will aim to make sure your business is placed in the correct rate class. The rate class code has a direct impact on your insurance premium. If you feel that you have been misclassified, you should immediately discuss the issue with your auditor.
We have extensive experience helping business owners understand their rights and responsibilities, including concerning workers’ compensation audits Contact us today for a consultation.