It's not uncommon for an employer to go into shock upon receipt of an audit bill for a recently-expired Workers' Compensation insurance policy.

Sometimes the increases in premium that result from an audit are unexpectedly high.

      Occasionally, they are so extreme as to threaten the financial viability of the company.

   That's why we call them "Shock Audits". And if you ever end up on the receiving end of one, you'll know it. 

          And the insurance industry typically does a pretty poor  job of explaining what they've done on an audit that makes the premium so much higher than expected.

You Can Dispute Your Workers Comp Premium Audit Charges and Win

      But it's vital to do your homework and know what protections and resources may be available to you.

First, you need to devote some time and effort to understanding the causes of the premium increase.

To do that, you first need to refresh yourself with the basics of how Workers Comp premiums are calculated.

If your instinct is to dispute the amount sought by the insurance company on the audit, because it seems outrageous and unfair and unexpected, your initial outrage and frustration may not serve you well.

 Those feelings may well be completely justified, but the system for disputing Workers Compensation insurance premium charges doesn't much care if the premium charges are outrageous, unfair, and unexpected.

The system is only concerned with whether or not the rules have been broken.

Insurance companies are accustomed to having policyholders get upset over large audit bills, and their response is often to dismiss your protests out of hand.

To get results, you will have to be specific in your complaints about what you feel are audit errors.

Figure Out What's Changed

To figure out if you have a basis for disputing the audit, you'll need a few documents: the original policy, the audit billing statement, and the audit workpapers.

First, examine how the estimated premium on the policy had originally been calculated.

Look at what classification codes were used, and how much payroll was assigned to each classification. Then compare that to the audit billing statement. If a more expensive classification is used on the audit that was not on the original policy, that may be a reversible error.

Look at the estimated payrolls used on the original policy and compare those to the payrolls used on the audit. If payroll has increased on the audit (as it often does) use the audit workpapers to review how the auditor determined how much payroll to pick up.

It's not just total payroll changes that can cause shock audits--it can also be how payroll is allocated among the different classes.

Examine what documents were examined by the auditor, and if the auditor had to make any assumptions due to some documents not being available.

If overtime pay is significant in your operations, make sure the audit workpapers indicate that an adjustment has been made to remove the premium portion of overtime pay. Almost all states allow the premium portion of overtime pay to be excluded, as long as payroll records allow the auditor to break it out.

The audit workpapers should also explain how the auditor allocated payroll lamong different classification codes.

That is, it should explain why the payroll of certain departments was assigned to particular classifications.

If the auditor has misunderstood the nature of the work done by some employees, it may have resulted in the wrong classification (and thus the wrong manual rate) being used to compute premiums for those workers.