Avoiding your workers’ compensation audit can lead to serious consequences for your Michigan business. Learn how to prevent significant financial penalties, coverage cancellation, and legal liability by staying compliant.
Understanding the Workers’ Comp Audit
An insurance audit verifies that you paid the correct premium for your workers’ compensation coverage. By law, Michigan business owners must carry this insurance for their employees. The audit process involves checking your actual payroll and employee classification codes against the estimates used to calculate your premium.
Risks of skipping your Michigan workers’ comp audit
Refusing or ignoring a workers’ compensation audit is a violation of your policy and Michigan state law. The consequences can be severe and escalate quickly.
- Higher estimated premiums. Your insurer will likely assign you a much higher premium. They’ll estimate your payroll using the highest possible rates and the riskiest classification codes, leading to a large, often inflated, bill.
- Mandatory surcharges. If you get coverage through Michigan’s assigned risk pool, you may face a mandatory non-compliance charge, which could be double your estimated annual premium.
- Collection action. If you do not pay the estimated premium, your insurer can send your account to collections. This can harm your business’s credit and lead to legal action.
- Policy cancellation. As a breach of your insurance contract, failing to cooperate with an audit is grounds for your insurer to cancel your policy mid-term. This leaves your business illegally uninsured.
- Difficulty finding new coverage. With a non-compliant cancellation on your record, you may be flagged as high-risk. Future insurance applications may be denied, and new policies will likely come with higher premiums.
- State-imposed fines. Operating without workers’ compensation coverage is illegal in Michigan and can result in significant fines and penalties from regulatory agencies.
- Personal liability for injuries. If your coverage is canceled and an employee gets injured on the job, you could be personally liable for their medical costs, lost wages, and any resulting lawsuits.
What to do if you missed your audit deadline
If you’ve already missed your workers’ comp audit, act quickly to mitigate the damage.
- Contact your insurer immediately. Get in touch with your insurance carrier or agent to explain the situation and reschedule the audit.
- Gather all necessary documents. Have your payroll records, tax forms (like 941s), and employee information ready to demonstrate a good-faith effort to comply.
- Address the issue promptly. Your insurer prefers to complete the audit and determine an accurate premium rather than resort to drastic measures.
Conclusion
Ignoring a workers’ compensation audit in Michigan is not a viable option for any business. The potential financial, insurance, and legal risks far outweigh the inconvenience of completing the process. By communicating proactively with your insurance provider, you can ensure your business remains protected and compliant with state law.