# Workers comp audit



## contractor2 (Oct 25, 2010)

If I cancel my workers comp with state fund will it make the audit go away?


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## Jaf (May 10, 2010)

Nope...


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## Bkessler (Oct 8, 2005)

and you won't be able to get it again until you do.

Audits are mandatory. I think.


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## contractor2 (Oct 25, 2010)

Can worker's comp pull your bank records without your permission?


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## Kent Whitten (Mar 24, 2006)

I would say if they have reasonable suspicion, then they could find a way through legal means. 

If your bank released the info, then I would say that the answer would be "yes"


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## Jaf (May 10, 2010)

Dude, your screwed.

Little tip. Meet with the rep. Be polite as hell, bring a printout showing what you want to claim for employees and 1099s (Obviously, this will be the correct numbers... right?). Bring your checkbook registers. Look and act small and poor. They'll probably take your word for it, and scan the registers while they admire the clouds. 

I have no idea what happens if you get caught in a lie. I've always given them the real numbers, and they always took my word for it. Also be wary of people you sub to who say they have a comp certificate. On my last audit, a couple subs lied to me, and I got stung. Get certificates, if no certs, cut their pay.

Ignoring them or trying to blow it off is only going to encourage them. Far as I know, comp is backed by the government everywhere. They can do what ever they want, it is their money. They will not go away.


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## Warren (Feb 19, 2005)

Why? Would that be a problem if they looked at your bank records?


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## contractor2 (Oct 25, 2010)

I just found out that a sub contractor has a suspended license. I would not want to list him if I am going to have to pay him as an employee. This is just one of the reasons.


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## Jaf (May 10, 2010)

Warren said:


> Why? Would that be a problem if they looked at your bank records?


I'm assuming he left himself over exposed. I'd assume a new policy, where he put in the minimum to get coverage. He's now getting audited and realized he didn't put away 7% of everything he paid out. He now has to come up with 7% for last year, and don't forget he has to pay 7% for the coming year as well. :help:

Contractor2 was doing it the right way, taking out a policy and paying by check. Meanwhile his competition down the street was paying cash under the table. 

It's great to be honest... huh?

Now join the club and bend over.


Come on, Con2, tell us the whole story... so far your completely legal. You won't get nuked.


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## Warren (Feb 19, 2005)

Jaf said:


> I'm assuming he left himself over exposed. I'd assume a new policy, where he put in the minimum to get coverage. He's now getting audited and realized he didn't put away 7% of everything he paid out. He now has to come up with 7% for last year, and don't forget he has to pay 7% for the coming year as well. :help:
> 
> Contractor2 was doing it the right way, taking out a policy and paying by check. Meanwhile his competition down the street was paying cash under the table.
> 
> ...


You seem to be making some assumptions based on a very very vague post. I was just trying to fish out some more information prior to assuming.


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## Jaf (May 10, 2010)

Warren said:


> You seem to be making some assumptions based on a very very vague post. I was just trying to fish out some more information prior to assuming.


Yeah, I'm making assumptions. I could be wrong. Either way, he's legal.

Legally screwed too.

I just had my audit Oct 22. I know the feeling, I was sloppy getting the certs this year. All in all, I came out alright.

I had one sub who out and out lied to me. I suspected it all along, never followed up on the cert. He wasn't a huge payout, large enough to notice though. He's one of the same guys who complains about getting a 1099 too. Same old game. Wants all the perks of being "in business" but doesn't want any of the burden.


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## contractor2 (Oct 25, 2010)

If I paid a contractor who no longer is licensed due to a judgment against him, and I did not know it, I can be liable for him due to the fact that I did not give due diligence to make sure his license was active but supposedly his comp may still be. I also have the issue of help that are not licensed contractor's who may not be listed or contractors who may not be listed by name. They may be listed in a lump sum called cost of doing business in my tax form. The audit is specifically asking for this. I told them I did not want to give them my check register because I had personal things in there. There are other reasons as well. I am told not to give anyone any more than you have to. 

So there you have some additional info. If I did not run individuals on the payroll can I legally state that I did not have payroll? I do not want to falsify a statement and open myself up to any additional problems.


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## Warren (Feb 19, 2005)

Wow there is soooo much wrong with that post. Mixing business and personal? Unlicensed contractors? Help that is 1099'd and shouldn't be? And where is this "lump sum cost of doing business" line on your tax form?


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## abacab (Sep 16, 2009)

I don't have comp (don't need it) and I don't get audited. I've only been audited when I've had it, and even then I don't think it was every year.


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## griz (Nov 26, 2009)

contractor2 said:


> ... I also have the issue of help that are not licensed contractor's who may not be listed or contractors who may not be listed by name.
> 
> *You are getting close to having committed fraud. At the rate you are going the Auditor will turn you over to your CSLB & Franchise Tax Board.*
> 
> ...


IMO you need a good Tax Attorney. Coming clean, filing amended returns etc may help you avoid criminal charges. Good Luck.


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## griz (Nov 26, 2009)

contractor2 said:


> If I cancel my workers comp with state fund will it make the audit go away?


No. You need to quit *****lng around before you end up in jail.


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## Jaf (May 10, 2010)

What state are you in? I believe each state is a bit different.

Here in Ma. if I were you, I'd call my carrier and run my problem past them first. It's free and they may help steer you. 

Not sure what kind of audit your going to. On the original letter sent to me, they listed all kinds of things they wanted. I'm not an accountant, I had no idea what some of them were. 

Contact the auditor, tell him/her that your small and run your business either out of a shoebox or in quickbooks. I bring a report from quickbooks, and that's all they look at. They make a point of looking at the registers. I brought the registers, and she flipped threw them 5-10 seconds. All the notes she took where off my quickbooks report. 

I believe though, you need to bring something detailed to back up your reports. Registers, cancelled checks, general ledger, whatever you have. If there is something you don't want to share, leave that at home. Better to not have it, then to lie. Chances are, they won't bother digging deeper, unless they see a good reason.

As far as using a contractor who isn't licensed. I don't know what state your in, or what other states laws are (or more accurately, whether they even enforce them). I do suspect that wouldn't have a bearing on your comp exposure though. 

When I get audited, I pick the auditors brain on the laws while I'm there. Might not be smart if you know your doing something wrong, but in my case, at least they know I'm trying to comply. Just frame your questions as "In the future if I want to ... blah, blah, blah... how does that affect me"?

EDIT

I also agree with the above two posters, sounds like you may have already put ripples in their water. Gulp. 

Come clean, it's only money


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## Sir Mixalot (Jan 6, 2008)

contractor2 said:


> If I cancel my workers comp with state fund will it make the audit go away?


No it won't go away. :no:
They just want to figure out if you owe them any money or not.:whistling
I get audited every year and it's almost painless. I meet with them in person and have everything in order for them. 
I owed $900.00 this year. :huh:


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## bhock (Feb 17, 2009)

Could one of our great MODs merge this thread with the the OPs other audit thread?


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## J L (Nov 16, 2009)

I get audited for w/c and g/l every year without fail. Got my w/c audit scheduled for next week. I know what the results are and I'm not looking forward to cutting that check.......:furious:


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## Driftwood (Feb 15, 2004)

*I'm also with State fund*

The audit is at My bookkeepers office. It's always spot on. PAINLESS.

Keep it ,don't use it, and just pay a small fee per Year.


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## Jaf (May 10, 2010)

Driftwood said:


> The audit is at My bookkeepers office. It's always spot on. PAINLESS.
> 
> *Keep it ,don't use it*, and just pay a small fee per Year.


Anyone have a claim put against their comp? How much of an impact did that have? 



I asked the auditor what roofers pay in. 

1/3 . 

"No roofing here, just curious, that's all" :whistling
Auditor mentioned I should break out any roofing jobs separately. Right...

(I do maybe 2 "roof only" jobs a year.)


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## apehangeralfy (Oct 26, 2008)

I use the pay as you go system threw ADP... I just went threw an audit last week. Took a couple pages off of my Quickbooks reports and was on his way in under 10 min. If you keep your books straight and don't try to hide anything you have nothing to worry about...


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## apehangeralfy (Oct 26, 2008)

Jaf said:


> Anyone have a claim put against their comp? How much of an impact did that have?
> 
> 
> 
> ...


My new policy is at 16.5%... Roofing only. I don't break out into other codes. Even if I do something that could be classified as less (framing or yard work when slow) I just pay up....


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## Warren (Feb 19, 2005)

apehangeralfy said:


> My new policy is at 16.5%... Roofing only. I don't break out into other codes. Even if I do something that could be classified as less (framing or yard work when slow) I just pay up....


Why would you not classify those under a cheaper rate? If you do a decent amount of work that is non roofing, you could save a lot of money as long as everything is on the up and up and well documented


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## loneframer (Feb 13, 2009)

I get a comp audit every year. They go to my accountants office and look at my payroll reports. I'm the only employee and I don't use subs. No big surprise bills at the end of the year.

I've had as many as 7 people on payroll in years past. All they want is their 14% of gross payroll, fair and square.


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## Irishslave (Jun 20, 2010)

I'm the guy who loves to rant, here goes...comp is one of the biggest job killers and impediments to doing business, right behind OSHA. While I do believe in insuring againt peril, The state gov's are crooks, here in Missouri some years ago we had an Attorney General who was charged with raiding the WC second injury fund along with some on the pad MD's. Smack on the wrist for Mr Webster and comp for roofing goes to 25%. Criminal. On the employee's side of it, If, God forbid, he gets hurt, he has to sue to get his money. The employer meanwhile has his rates skyrocket even if he is in compliance with all saftey regs. In Missouri sole proprieters if they have no employees are not required to carry WC just liability, however many generals and informed HO's won't touch you without it. The lawyers and the state regulators have made insurance cost 3 times as much as it should


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## fireguy (Oct 29, 2006)

Got audited once. My bookeeper told me to write down any one who I may have forgotten to 1099 or add to my wc. She also suggested I clean the office and neaten it up. My bookeeper came in a couple of hours before the auditor, we pulled any paper work that might be questionable and reviewed it. The auditor came to the front door. Like many contractors, the office is in my house. My bookeeper had all of the required paperwork ready for the audit. We passed the audit easily. I asked some questions, they were answered. When it was all over, the auditor told me if she had known who my bookeeper was, there would have been no audit. My bookeeper has a reputation for honesty and quality work.


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## NES (Oct 28, 2010)

I know of a way you NEVER have to deal with an audit again.


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## J L (Nov 16, 2009)

Become an employee?


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## NES (Oct 28, 2010)

No, but I will be glad to explain for anyone who is genuinely interested.


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## J L (Nov 16, 2009)

The floor is all yours.........


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## NES (Oct 28, 2010)

I work for a Professional Employer Organization (PEO), we have offices in California, Missouri, and New York. We have over 10,000 employees under us. What our company specializes in is a thing called "co-employment". We become the employer of record for your employees to shield you from liability. All your day to day operations stay the same. We buy our insurance in bulk, for 10,000 employees so we get a much cheaper rate. It's just like if you go buy a pallet of candy bars at Costco or Sams Club you are paying significantly less per unit, than if you were to go and buy one candy bar at 7-11. When you partner with a company like mine you no longer have to worry about audits, rising year end premiums, or any liability. We protect from all of that. We also do your payroll for FREE. Most contractor's haven't heard of the type of business I represent which is a shame, because any small to mid-size contractor could save a TON of money working with us. I would be glad to go into detail over the phone and answer any questions you might have. 10 minutes of your time will save you tens of thousands a year.
You will never have to worry about expensive worker's comp claims again, because we deal with all the headache with our physicians, lawyers, etc.


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## J L (Nov 16, 2009)

Interesting concept. Sounds shady.


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## NES (Oct 28, 2010)

Try looking up PEO on google, since I can't post the link (because I don't have enough posts) and read the wikipedia.Like I said, we cover over 10,000 employees and the majority of the companies we work with are contractor's. If anyone is genuinely interested I would be more than happy to provide numerous references from other contractors and companies we work with.


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## Framer53 (Feb 23, 2008)

RemodelGA said:


> Interesting concept. Sounds shady.


Not in the least.:thumbsup:

It used to be called employee leasing.


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## J L (Nov 16, 2009)

I've heard of employee leasing, but for whatever reason I was under the impression that it was for temporary workers, be it for a day or for a project. I've not heard of leasing everyone in the company.

I dunno. That was just my first impression after reading NES' post.


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## NES (Oct 28, 2010)

to quote Wikipedia: A professional employer organization (PEO) is a single source provider of integrated services which enable business owners to cost-effectively outsource the management of human resources, employee benefits, payroll and workers’ compensation and other strategic services, such as, recruiting, risk/safety management, and training and development.[1] It does this by hiring a client company’s employees, thus becoming their employer of record for tax purposes and insurance purposes. This practice is known as co-employmentAs of 2010, there were more than 700 PEOs operating in the United States, covering 2-3 million workers.[2] PEOs operate in all fifty U.S. states, Sweden,[3] Germany,[4] the UK,[5] and Russia.[6]


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## NES (Oct 28, 2010)

I would love to open a dialogue with a couple members of these forums and give them an idea of just how helpful of a service I am offering. I'm not trying to sell anyone or push something on anyone that they don't want. I have a legimate service that would be beneficial in multiple ways to any of you. I would love to prove my worth here.


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## J L (Nov 16, 2009)

NES - just a heads up but you may want to familiarize yourself with CTs terms of service for service providers.

http://www.contractortalk.com/faq.php?faq=new_faq_item#faq_postingrules


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## Warren (Feb 19, 2005)

I switched over to employee leasing during the second half of this year. I was fed up with the mistakes my payroll company was making and looked into the leasing. My workers comp rate actually did not change, as I was already getting group coverage through our Home Builders Association. For me it just came down to consolidating everything. They take care of payroll, comp, unemployment, and also have a human resource department that helps with hiring, firing, and other employee issues. So far so good.


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## pcplumber (Oct 12, 2008)

*Worker's comp audit are nothing to worry about.*

You are not dealing with the IRS. The only thing the worker comp auditor is looking for is the money due to their company.

Paying unlicensed contractors and paying employees without taxing them is never a problem with a worker comp auditor. The only thing I think they look at is the DE5 form you claim with the state or IRS and they look at payments made to other employees. When the auditor finds something they are concerned with they will ask you. You tell the auditor you did not pay taxes for a million reasons and there is never a problem. The worse that can happen is the auditor disagrees with you and you owe some money.

I have never had a liability nor worker's comp auditor ever request one invoice, never one receipt, and never a copy of a bank statement.

Always use an accountant and have the audit done at their place.

Most businsesses have a petty cash account and it is my understanding that petty cash accounts do not have to be reported to any agency. Also, I don't think there is any money-limit for petty cash accounts.

Every business has good reasons for not taxing employees. It is also my understanding that the only fine you can get for not filing a 1099 for an employee is $50 maximum regardless of the amount you paid.

A worker comp audit is nothing to worry about. Don't be cheap and pay a few hundred dollars a year for an accountant. Otherwise, it sounds like you don't know what you are doing and you are going to make the audutor think you really did something wrong.

You have nothing to worry about if you listen and pay an accountant to handle the audit. Then, download the free accounting software in the File Swap thread and keep simple and accurate records with the system described in the video. This software has a system made specifically for recording payroll directly from your checking account and for printing reports for worker's comp. You can have a separate category for untaxed or 1099 workers. Again, there are several legitimate reasons for not taxing workers and if you have a clean printout as with this software, you can explain the reasons.. You can learn this system in only a few minutes. It will keep your records to the penny and you will be able to tell the auditors when they make errors and they have made serious errors. Without a simple system more peope are screwed. Take a few minutes to get your business organized. It is too simple to keep your nose squeaky clean. There is no excuse for not knowing how to keep accurate records so know exactly what you are doing.

In fact, if I were you, I would download the software right now and enter all your check records as shown in the video. Print the reports for the specific months you need and when the auditor sees these reports he or she will most likely not request any records with the exception of those you report to the state and IRS, but the lack of these records is still usually not a problem because the worker's comp and government do not report to each other (not that I've ever seen).


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## Five Arrows (Jan 30, 2010)

NES said:


> I know of a way you NEVER have to deal with an audit again.


No Habla! yo necessito trabajo. I work low price, ok?


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## Gough (May 1, 2010)

Warren said:


> I switched over to employee leasing during the second half of this year. I was fed up with the mistakes my payroll company was making and looked into the leasing. My workers comp rate actually did not change, as I was already getting group coverage through our Home Builders Association. For me it just came down to consolidating everything. They take care of payroll, comp, unemployment, and also have a human resource department that helps with hiring, firing, and other employee issues. So far so good.


In many states, Idaho included, the WC rates are set by the state. it doesn't matter if you're with the state fund or a private carrier. It also doesn't matter how big you are or your experience/claims rating. On the other hand , if a bunch of other painters get hurt one year, the rate goes up for everyone. For employees who are roofers, you pay x%; for painters, y%. In many cases, the only way an employees leasing company or a temp agency can lower your WC rates is my mis-classifying employees. If one of your "secretaries" is hurt falling off a roof, you may have some explaining to do.

I chose to go with a privare carrier. Unlike the state fund, they let me break down my payroll in several classification, so I can save money when we're doing Carpentry and General Labor instead of Painting, for instance. My annual WC audit is done over the phone and takes less than five minutes.


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