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Why are workers’ comp payroll audits necessary?

It seems like just one more paperwork headache: completing your workers’ comp payroll audit. Insurance carriers, such as NYSIF, are required to audit the payroll records of employers to determine premiums for workers’ compensation policies. In reality, the payroll audit actually helps you get the lowest possible rates on workers’ comp insurance for your business. The purpose of the audit is:

  • To determine the total amount of payroll subject to a premium charge.
  • To determine the nature of your business and ensure your employees are classified correctly.
  • To verify the division of payroll for each employee’s job classification.

By examining each of these areas as part of the payroll audit, you are setting up accurate records that will help you pay the lowest possible premium on this insurance.

“When employees aren’t classified correctly, it can lead to a significant increase in premiums that the employer really shouldn’t need to pay,” said Retail Council Insurance Services Manager Virginia Hitchcock. “The audit is designed to catch errors so employers aren’t paying more than they should for workers’ comp or less than they should, which will eventually lead to a sizeable back payment of premium due.”

The audit is time sensitive as the information on payroll is one component used to calculate experience modifications on applicable policies and to estimate the next renewal premium. When an audit is completed early, additional premium due can also be paid in an installment schedule.

Retail Council Safety Group participants need to remember, too, that a payroll audit(s) must be complete to be eligible to receive your part of the Safety Group’s dividend! In November 2010, more than $4.1 million was returned to qualified group members. Don’t let an incomplete payroll audit stand in the way of the hundreds, thousands, and in some cases, tens of thousands, of dollars you may be eligible to receive.

When it comes to conducting the audit, insurance carriers may want to examine your books and records to determine payroll; this is called a physical audit. In other cases, a policyholder may be permitted to complete an underwriting payroll report (DP517) or a premium audit payroll statement in lieu of a physical audit.

If NYSIF, underwriter of the Retail Council’s Safety Group 493, would like to perform a physical audit of your records you will receive advance notice either in writing or by telephone from NYSIF within two weeks of a scheduled audit date.

Make Audits Work For You - NYSIF brochure (pdf)

If you have questions about your payroll audit(s) or any other aspect of your workers’ comp insurance, please call Virginia or Ken in the Retail Council’s Insurance Services Department at (800) 442-3589.

Workers' Compensation Insurance FAQs