Beware of the Worker’s Compensation Insurance Audit Surprise
As a small business owner, one unexpected cost that can catch you off guard is a hefty bill from your worker’s compensation insurance carrier after their annual audit.
Here’s how it typically plays out: Your worker’s comp premium is based on the projected payroll you provide when obtaining coverage. At the end of the policy period, the insurance company conducts an audit by reviewing your actual payroll records and payroll tax returns.
If your payroll ended up being higher than projected, you’ll owe additional premiums. This tends to happen with rapidly growing businesses that hire more employees throughout the year without adjusting their initial payroll projections.
The surprise bills can really sting, especially if your payroll significantly exceeded expectations due to a hiring surge. Suddenly, you’re slapped with a large, unanticipated premium hike that wasn’t budgeted for.
To avoid these nasty surprises, there are a couple of potential solutions:
Stay on top of your payroll growth and notify your insurance carrier if hiring projections change drastically. This allows them to true up your estimated premiums.
Inquire about “pay-as-you-go” plans where you pay premiums in sync with actual bi-weekly or monthly payroll instead of an upfront lump sum based on estimates.
Being proactive about updating payroll figures and leveraging pay-as-you-go options can prevent you from writing a huge check to your worker’s comp carrier at audit time.
