Adapted from an article by Kevin Ring of IWCP
Introduction
At AuditWorks, we specialize in helping businesses—and the payroll and accounting professionals who serve them—navigate the audit process accurately and efficiently. Here are the top five mistakes we see most often, and how you can avoid them.
1. The Ghost of Operations Past
If your business has changed but your classifications haven’t, you could be paying high-risk rates for low-risk work. Always review your codes each year.
2. Mingling Overtime Pay
Most states allow you to exclude the overtime “half” from your premium, but only if your records clearly show regular pay and overtime separately.
3. Including Tips and Gratuities
Tips paid directly by customers aren’t part of payroll. If your system doesn’t separate them from wages, your premium will be higher than it should be.
4. Forgetting About Employee Benefits
Employer-paid benefits such as health insurance or 401(k) contributions don’t count toward payroll, but they must be clearly itemized in your records.
5. Paying on Severance
Workers’ comp premiums apply only to active employees. If severance pay isn’t recorded separately, you could be charged for someone who’s no longer on staff.
6. Not Separating Work Classifications
When employees perform both high-risk and low-risk tasks, track their time carefully. Without detailed records, auditors must assign all wages to the highest rate.
7. The Uninsured Subcontractor Trap
Hiring uninsured subcontractors can make their entire payment count as your payroll. Always request proof of coverage and detailed invoices that separate labor from materials.
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About Kevin Ring
Kevin Ring is the Lead Workers’ Compensation Analyst for the Institute of WorkComp Professionals, which trains insurance
agents to help employers reduce Workers’ Comp costs. A licensed property and casualty agent, he co-developed a new Workers’ Comp software suite for insurance professionals.
Contact: 828-274-0959 or Kevin@workcompprofessionals.com
About AuditWorks
Helping businesses, payroll providers, and accounting firms prepare for and review workers’ compensation audits with precision and peace of mind. Whether you need audit preparation, data verification, or a full audit review, we’re here to help ensure fairness and accuracy every step of the way.
