What Happens When You Miss a Workers Comp Final Audit

Ah, the dreaded Workers Comp Final Audit. You can’t avoid them! If you’re reading this post, you’re most likely familiar with the Final Audit. Maybe you’ve had a bad experience with a Final Audit. Maybe the auditor was rude or non-responsive. Maybe the process was complex or vague and you weren’t able to get any help. Maybe you’re getting a notice from your workers comp carrier demanding an ungodly amount of money from you.

So what is going on?

Before finding out what happens when you miss a Final Audit and what you can do about it, let’s refresh what a Final Audit is and what its purpose is.

What Is a Final Audit and What is Its Purpose?

In Workers Comp, a Final Audit is a verification of your annual payroll. All Workers Comp policies are based on your payroll – on a go-forward basis. When you sign up for a Workers Comp policy, you estimate the payroll for the next 12 months and pay your premium based on that estimate. The audit occurs at the end of those 12 months, after your policy has expired. Your Workers Comp carrier initiates the audit. They contact you and request your payroll records to calculate your actual payroll during that 12-month period.

The purpose of the Final Audit is to simply make sure that the premium they charged you was accurate. Since every workers comp policy starts with an estimated payroll amount, the Final Audit serves to verify the estimate. The result of the Final Audit can be good or bad, depending on your initial payroll estimate. If you overestimated your payroll, you’ll get overcharged money back. If you underestimated, you’ll owe more money.

The Various Billing Arrangements – Still Subject to a Final Audit

Before we move forward, it is important to point out that Final Audits occur on all Workers Comp policies, regardless of the billing plan. So regardless of whether you had self-reporting workers comp, or it was integrated into your payroll plan, you still have a Final Audit to content with.

I mention this because some people might believe that self-reporting or payroll-integration billing plans do away with the need for an audit. They don’t. The reason is that sometimes people make mistakes in their own reporting. And other times, believe it or not, people make intentional mistakes. They may intentionally underreport payroll to their Workers Comp carrier so they don’t have to pay as much premium. I know, hard to believe, right?

OK, finally, now, the stage has been set. We are ready to answer the big question.

What Happens When You Miss a Final Audit?

The Workers Comp carrier will initiate the Final Audit by contacting you and asking for payroll data. They can do this in a number of ways. They can have an auditor call you. They may send you a letter in the mail asking you to provide documents and to fill out a form. They may send you an email with a link to a portal for you to upload data and answer questions. Their request for data and documents will also include a due date.

Here’s what happens if you don’t fill out the forms or send the documents in time.

First, if you don’t complete the audit in time, the insurer will slap a “Non-Cooperative Audit Fee” to the policy, which is in most cases doubles what your original estimated annual premium was. This invoice will not offer financing and it will be due typically within 30 days.

Second, they will cancel your current workers comp policy midterm if you don’t pay the Non-Cooperative fee by the due date.

Third, they will initiate Final Audit for your current policy. If you don’t comply with that, you will get a second Non-Cooperative fee.

Lastly, if ignored, you’ll get a letter from Collections telling you that you’re in big trouble if you don’t pay up. This piques your interest and that’s what led to you finding this blog post.

Here’s how this plays out. Your $60,000 policy expired and the new edition renewed on 1/1. Within the first week of expiration, the carrier sent you an email with a link to fill out an online form and upload payroll documentation which you marked as spam because you didn’t recognize the sender. Having missed the completion date, your carrier mails you an invoice for an additional $60,000 (your Non-Cooperative fee) to be paid by 3/1 or your current policy will cancel. You put it in the “to read later” pile because it looks like the other 300 items your insurance companies have sent you that you’re not caught up with. 3/1 arrives and since you didn’t pay the fee, your current policy cancels. The next week, you miss another Final Audit request email from your carrier for the short-term policy of 1/1 to 3/1 because it went to your junk mail. The carrier then mails you your second Non-Cooperative fee, this time for $10,000, which you add to your “to read later pile” along with the last one. The Collections letter also comes in the mail, which you open immediately because lawyers always know how to get people to open their letters immediately.

What Can You Do About This?

The answer is simpler than it seems. So simple it eludes most people. All you have to do is contact the Workers Comp carrier and ask them to re-open the Final Audit.

It’s a three-step process:

1. Call them and tell them you want to re-open the audit
2. Tell them you’ll send them everything they need
3. Complete the audit on time

There is a possible fourth step: that is to call Collections and tell them you are going to complete the audit. I would deal with the insurance company directly though first and then deal with Collections if necessary. Yes, insurance companies are cold and heartless, but they also don’t hold a grudge. They really do just want to complete your transaction and move on. If in the end they owe you money – even after all this time and with the threat of collections – they will still refund you.

If it so happens that you have previously completed the Final Audit, but disagreed with the results, and therefore initiated a standoff by ignoring their invoice and any other correspondence (except the collections letter), the steps are the same. The only difference is that you will add that you want to re-open the audit because you are disputing the previous results. And you have to be prepared to prove to them why the old information that you sent them was wrong and the new info is right.

OH, AND ONE MORE THING. There is, however, one exception to the rule about Final Audits being unavoidable, and that is to go with a PEO. If you place your Workers Comp with a PEO, you’ll never have a Final Audit again.

What Is a PEO and How Is This Possible?

A PEO (Professional Employer Organization) is a package of services that you sign up with that handles both your workers comp and your payroll (and payroll taxes and potentially many other services and insurance coverages, too. Learn more about PEOs here). Since the PEO is your payroll provider and handles all your payroll documentation, there is no documentation for you, the business owner, to provide. For a PEO to audit you would be for them to audit themselves.

Joining a PEO can be a massive simplification to the business battling and/or struggling with increasing complexity. Not only does a PEO eliminate the need to take the time to complete the audit, but it prevents risk of policy cancellation, additional audits, and Non-Cooperative fees. And it could save you a lot of money too.

If you want to know more about how to handle your Final Audit scenario, you’re curious about whether a PEO might be right for you, or you want to look into another workers comp option, just click on the “Schedule a Call” or “Send Email” button below.

Our process is simple. Here’s what to expect:

1. Set an appointment. Just click on one of the two buttons below
2. Have a conversation. We’ll learn about you and your business, gathering all the information needed to offer a quote.
3. Receive your quote(s). Once we’ve received your quotes, we’ll reach out to you and schedule a time to discuss and review your potential PEO or standalone workers comp solutions.