Being the focus of any kind of audit does not seem like a great way to pass a day, but since they can occur, it’s wise to know what to do if a worker’s compensation audit is in your small business’s future. According to Adrienne Pietropaolo, a staff attorney in the Columbus office of Barnes & Thornburg, worker’s compensation audits are conducted by the Bureau of Worker’s Compensation. Businesses chosen for audits are selected at random, at least in Ohio, she says. In addition, a company owner can request that their worker’s compensation account be audited. A good time to request such an audit is when a business owner “believes their company has over-reported payroll or if the business owner thinks employees have been incorrectly classified,” she says.
The good news, according to Pietropaolo, is that worker’s compensation audits are “not incredibly common.” However, if your company is selected for one, there are certain steps to take to be prepared.
“They will look at your records for the last four semi-annual reporting periods,” Pietropaolo says, noting she is referring to Ohio laws only. Since state laws govern how these audits are conducted, it is wise to consult with an attorney licensed in the state where the audit will occur. The government “wants to be sure everyone is paying the premiums they should and not misclassifying employees,” she says.
If an employer is found to have misclassified employees, the Bureau of Worker’s Compensation will update the entity’s file and charge an updated premium that correlates with an employee’s classification. At least in Ohio, an employer can be obligated to pay premiums for the last two years if the results of an audit indicate misclassifications have occurred, says Pietropaolo.
A recent article on Balance.com details specific items a business owner needs to prepare for such an audit. They include:
- Accounting ledger
- Tax forms, particularly forms 941 and 944, Employers Federal Tax Return (quarterly and annual, respectively)
- Records of cash disbursements
- Payments for services provided by independent contractors
- Verifications proving independent contractors are truly not employees
- Payments for services provided by subcontractors
- W-2 and 1099 forms
- Job descriptions for each employee
“When you are first figuring out job classifications, work with a professional to properly identify employees,” she says.
It is imperative to properly classify independent contractors. “Misclassifying independent contractors is the biggest fail of employers when it comes to identifying them for the purposes of worker’s compensation,” she says.
Tami Kamin Meyer is an Ohio attorney and writer who tweets as @girlwithapen.
