In the workers’ compensation industry, policyholder premiums get calculated not once, but twice. The first calculation is an estimate based on the business operations, payroll and job classifications in effect when you applied for coverage. The second calculation, performed at the end of the policy year, is based on an audit of these performance measures. If your actual performance differs from what was estimated, your business may receive a refund or be billed additional premium.
Types of Audits
The following information gives you guidance on the premium audit process, tips for preparing and more.
Self-audit questionnaires are mailed to you to complete and return with the appropriate requested information. The questionnaires are sent the day your policy ends and allow you thirty days to complete and return.
Physical (In Person) Audit
Personal visits to a company are known as physical audits and involve a New Mexico Mutual staff auditor conducting an on-site review of business operations and employee payroll to make an accurate assessment of the final actual premium.
How To Prepare for Your Audit
Verifiable Records Needed for Your Audit
- Federal Tax Returns
- IRS Form 941s or New Mexico SUTAs
- Cancelled checks and bank statements
- General Ledgers
- Cash disbursement journals
- Books of original entry (including source documents)
- Job contracts and/or invoices
- Certificates of insurance for sub-contractors (if applicable)
- Payroll records including overtime in dollars, hours, totaled by employee per pay period, and summarized by class code in order to receive credit for excess overtime pay (payroll paid in excess of the regular rate of pay)
- Job descriptions detailing each employee’s duties
- Written contracts
- Executive officer payrolls and descriptions of their duties (even if the officers have elected to be excluded from state workers’ compensation coverage)
- Brochures or promotional items that offer a comprehensive description of your business operations, including your products and/or services
Good Record Keeping Tips
The most common way to reduce your insurance cost is to differentiate overtime earnings in your records to separate straight time and premium time. For instance, the half-time portion of ‘time and one-half’ for overtime wages is not included in calculating your premium.
Employee tip wages will not be included when they are separated from your employee’s regular wages.
Use correct classification(s) to describe your business, as sometimes there are lower cost classifications available to you. Determining correct business classifications can be complicated and our premium audit professionals can help you understand this process.
There are also other record keeping methods that you can use to lower your premium costs. New Mexico Mutual provides these tips and other premium audit information, call Premium Audit Department at: 505-343-2825 or 505-343-7720