How To Avoid A Workers Compensation Audit

Payroll processing is one of the most complicated back office functions. The outcome is dependent on several variables, including actual hours worked, employee classification and whether hours worked should be considered overtime. There is also the crucial matter of withholding taxes and other exclusions and forwarding the applicable amounts, including employer portion, to state or federal agencies in a timely manner.

Businesses that are required by law to obtain workers’ compensation insurance for their employees bear the additional burden of conforming to mandated payments or face severe penalties.

Workers’ Compensation Insurance in Wisconsin

Most Wisconsin employers are required to carry workers’ compensation insurance starting with those that have at least three full or part-time employees or employers whose gross payroll for a calendar quarter exceeded $500. There are at least 350 companies licensed by the state to write workers’ compensation policies in this area.

Premium rates vary depending on job classification and industry. The Commissioner of Insurance oversees the Wisconsin Compensation Rating Bureau, the agency tasked with defining premium rates for each job class.

Workers’ Compensation Audit

Workers’ compensation insurance differs from other insurance policies on one crucial aspect: It is an auditable policy. Typically, the premium is based on an estimate of actual payroll at the end of the policy year. A business that projected a $100,000 payroll but ends the year with a gross payroll of $125,000 will receive a premium audit bill applicable to the extra $25,000.

Complicating the matter further, additional premiums depend on factors contributing to the payroll overage. Increases in number of employees, overtime pay and employees at a higher pay scale will affect the additional premium due at the end of the policy.

Avoiding a Workers’ Compensation Audit

A pay-as-you-go system of managing workers’ compensation premiums relieves employers of the year-end audit process and eliminates the possibility of an un-budgeted premium payment while ensuring maximum cash flow.

Under this system of processing, the premium is calculated based on the current payroll, and the amount is immediately forwarded to the carrier via automatic deposit. This program eliminates large upfront payments, finance charges and year-end lump sum payments that often happens with the best-guess approach to calculating workers’ compensation premiums.

Facilitating Pay-as-you-go Programs

Companies who are already outsourcing payroll services to a third party should look into workers’ compensation pay-as-you-go programs. Eliminating the guesswork in premium calculations will minimize the need for quarterly or year-end audits. It will optimize cash flow management while ensuring that the business conforms with workers’ compensation requirements as good corporate citizens should.

We help our client’s with all of their payroll needs. Contact Integrated Payroll, located near Brookfield Wisconsin, to help you through the maze of this important topic.

 

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