I’ve been in business a year and just got a voicemail requesting a Workers Comp Audit.
Can anyone tell me what to expect? What papers/documentation do I need? I’ve been withholding and all that, and have my tax filings. Will the auditor want anything more?
Getting the details right for a wall assembly with the control layers to the exterior and lots of drying potential.
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Replies
I'm in Michigan.
I have to show certificates of insurance from any and all subcontractors that I have used. Alternately, I can have them fill out a Sole Proprietor Exclusion Form (available from my insurance carrier) if they are self employed with no employees.
I also need to have all employee payroll records on hand for the audited period.
Terry
They do mine by phone and fax. I send them my 941 federaal, and a copy of my quickbooks report for all subcantractors. I have WC certificates for most of them. I break theat list into fully insured business entities with comp and WC and employees of their own, second section is Artisans who are not required to hace WC in this state when pre-qualified, and who I pay no WC on, and then there are a few subcontrators who fail to get me certificates and who will not be working for me again because I get to paay the full load on them.
You can also keep records to show hours worked in each of the various trades, som ebeing more expensive than others, so it can help your bottom line theoreticly, but for me, it isn't worth the time to record the classsifications.
JLC has had a couple articles on this over the years.
I do my recording through the year, so it only takes me an hour or so to compile the info and faxx it to them.
something I have noticed - don't know if true across the board, but I try to have all the data segmented and presented in an easy read format. If you make the auditor do the work, they are not picky about lumping things together, but if you present it neatly laid out in their lap, they are not often ambitious enough to pry it all apart to hit you for more - that is work.
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I had one in August. I was freaked out over it, but it's NO where near an IRS audit. No big deal just as long as Quickbooks matches your quarterly reports and your semi-annual payroll reports to BWC. Don't worry, just be prepared...
if your record keeping is squared away its no big deal. Making sure you have insurance certs for everyone you hire basically. While I'm sure the rules vary place to place some, they can't vary too much. Here if I don't have it they can hit me for work comp for that guy for that job. But if you're stuff is all straight, it's a ten minute ordeal. The more you have prepped and in order for them to look at, the faster you're on with your life.
"If you pick up a starving dog and make him prosperous, he will not bite you. This is the principal difference between a dog and a man." - Mark Twain
Everyone pretty much covered it already. My first two audits were the 'self audit' type where you fill out the forms and fax them the Schedule C from your tax returns. This year an auditer came out to the house to do it. She expected access to my payroll records, my bank statements, my tax returns, and even my checkbook ledger. And, of course, she wanted to see certificates from any sub contractors I used. She went through and questioned every single check I wrote the entire year. I was a bit surprised.
No wonder my dog was growling at her before she even got out of the car.
i get a facce-to-face annual insurance audit..
last year i got a little sloppy on chasing my subs for insurance certificates and waivers..
cost me $5000 , which i eventually got back when the certificates finally came in months later.. but not until my premiums had been boosted to match the new estimates..
you have to have your paperwork in order..
or pay the priceMike Smith Rhode Island : Design / Build / Repair / Restore
Thanks so much for the feedback. I think I've got most of that info in order--are they going to be upset if my subcontractor payments exceed my payroll?
I don't know if this is the case any where else but in our wonderful state...
We are required to log on to the state's website and verify that any sub we hire has worker's comp and is current on their premium payments. If we hire someone who is not current, we can be dinged for their premiums on audit, meaning the auditor goes thru the checkbook and verifies the status of any sub we write a check to.
Shortly after that, the insurance auditor does the same thing, verifying that we have a written subcontract with an indemnification and an additional insured cert from every sub.
Then the sales tax auditor comes and verifies that we have collected 7.7% of our gross in sales tax, paid it all, and also paid use tax on anything we have bought tax free that was not resold (i.e. anything bought via the internet from out of state, anything purchased tax free from vendors whose POS systems cannot differentiate resale from non, etc.)
I'm going to try to schedule all of these audits for the same day as a colonoscopy, get the whole thing over with all at once.
LOL.
last year i got a little sloppy on chasing my subs for insurance certificates and waivers
A little sloppy the the tune of 5k?!!! That's a LOT sloppy Mike!
I usually fly through these audits because I tend to keep my nose clean. But, one time, a marine seargent disguised as a WC auditor showed up. She refused to let our crane rental entries slide by as just rentals because there was an operator supplied too. Luckily I was there during the audit (that was my first and only one I've been there for) and I was able to badger her into letting some (most) of it slide. Ironically, I still don't collect certs from the cranes that we hire.
I don't know how far all this should go. Should we be asking Home Depot to supply us with certificates if we stop in a buy a hotdog?
blue
I had the same problem this year Mike. But I had 60K worth of payouts with missing certificates. That ran me 6K due for last year plus another 6K for this year's adjusted estimate. Had to cough up 12K just to stay in business while I scramble for the certificates. Live and learn.
the main culprit was my mason.... at the end of the season he goes to Maine and doesn't come back until Spring
eventually we start to realize...these houses aren't built with wood & concrete.. they're built with paper.. no paper .. no houseMike Smith Rhode Island : Design / Build / Repair / Restore
At least you have a good excuse. I just didn't know any better... but I should have. Growing pains, I guess.
It's been a real long time for me, thankfully. They wanted my check book. Went through each check I had written and I had to explain every check that was written to an individual. I've got a feeling they followed up on my plumbers, electricians, painters, etc. I was legal on all my employees so there wasn't any problems.
Beat it to fit / Paint it to match
Looking through QuickBooks, I am reminded I wrote about 7k in checks way back at the beginning of the company to individuals--besides costing me the WC premium, is this going to cause me troubles?
"besides costing me the WC premium, is this going to cause me troubles?"
This will not cause you any troubles and if you get their certificates you can get the premium refunded.
The fact that your subcontractor expense is more than your payroll is not a problem. This is probably the most common situation. To avoid chasing around after certificates, get them when the work is being done.
Be prepared to work to pay only what you need to pay. We have often had to argue about our sole proprietors who are not required to carry WC. Hopefully the new affadavit/form that is now required will smooth that over.
Thanks so much for all the advice--I had my 941's and Profit and Loss from QB ready, and it took less than 20 minutes. Got dinged for a few things, but in the end quite painless.
Any time I hear the term audit, (not often, thankfully) I turn the discussion over to my CPA. He's paid to keep things good on paper and he knows how to talk to them in words they understand.
He takes what he needs, sets it all up so they see what he wants them to see, makes it as easy as possible for them, and gets it done. It's done at his office, or theirs. I'm not there, so I can't put my foot in my mouth. That thing alone makes it worthwhile to pay him his hourly fee.
Don K.
EJG Homes Renovations - new Construction - Rentals
Yeah, I need to migrate to an accountant--tough to do in the first year when I am already in the black.
Betterbuilt - Your name says NYC. Do you ever get out to Long Island? The CPA that I am using is very knowledgable, fair on prices, and a genuine nice guy. He is in Sayville. I know he goes east, don't know if he goes in to the City. If you are interested, drop me a private e-mail and I will give you his name and address.
I noticed you said you are in the black, congratulations. Be happy. That means you are making $$. If you were in the red, I'd buy you a beer. On second thought, just to show I'm a sport, I'll buy you one anyway! <G>
Don K.
EJG Homes Renovations - New Construction - Rentals
Heh--I meant to say I am just getting into the black--still in the red from insurance overhead and a slow winter/spring.Amazing how our fingers type what we want to be the case. Don, thanks for the offer--I shot you an email.
Don, that's probably the wisest choice.
blue
Blue - Quick story.
Back when I was practicing law full time, I wound up i/f/o a judge who got major league po'ed with a client that I had. It happened to be a federal judge, who referred the matter to the FBI for investigation. I handled civil matters and was not keen on this at all, 'specially when they call me in for an interview. (The client's new attorney went with me and there was no problem with attorney-client privileged material.)
I had prepared hundreds of witnesses for testimony before this, and one thing we try to drill into their heads, is, "Answer the question Yes or No, then shut up." So this FBI agent asks me one question, maybe two, and I launched into an answer that must have gone on for 20 minutes. Finally, the other lawyer politely taps me on the shoulder and says, "Don, I think you answered the question." As much as I knew the rules, I couldn't shut up before that.
To make sure that I don't pull that stunt again, I keep myself out of the situation. If I ain't there, I can't say the wrong thing, and they can't hold it against me. Lesson learned.
Don
EJG Homes Renovations - New Construction - Rentals
I had mine in september. The guy came to my house, looked over my books and was gone in 5 minutes. I even got a refund this year.