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To help your cannabis industry clients prepare for a workers’ compensation audit, focus on meticulous recordkeeping, accurate employee classification, and open communication throughout the audit process. Cannabis workers’ compensation insurance audits verify payroll, job roles, and coverage, ensuring compliance and the integrity of your policy premium.
What Is a Workers’ Compensation Audit?
A workers’ compensation audit reviews actual payroll figures, employee roles, and business operations for the coverage period to determine final premium costs. For cannabis businesses, audits are performed annually or at policy renewal, often in-person or remotely. Auditors assess payroll records, duty descriptions, classification codes, and subcontractor documentation to ensure accurate risk assessment.
Essential Steps to Prepare Your Client
Help your cannabis clients follow these essentials for a smooth audit:
- Organize Documentation: Gather payroll summaries, tax forms (Federal 941s, state unemployment), overtime logs, subcontractor certificates of insurance, and other compensation records. Make sure all files are up to date and easily accessible.
- Verify Classification Codes: Confirm each employee’s job type and risk class code. Cannabis operations have multiple classifications (cultivation, lab, transporters, manufacturers, retailers, and ancillary business); misclassifications can result in significant premium adjustments.
- Document Subcontractors: For all 1099 contractors and vendors, confirm their insurance status and collect certificates of coverage to avoid being charged extra premiums for uncovered subcontractors.
- Review Payroll: Prepare detailed records and highlight non-standard payroll items (such as overtime or non-cash compensation) so auditors can apply rules correctly.
- Communicate with Your Team: Assign a primary audit liaison, someone familiar with payroll, job duties, and department structures who can answer auditor questions and handle requests promptly.
- Pre-Audit Self-Assessment: Use an internal checklist and conduct a mock audit, addressing gaps in documentation or clarity before the official audit.
Compliance Resources for Cannabis Businesses
Cannabis clients must adhere to both state and federal requirements. Review recent changes in IRS regulations, OSHA guidelines (for workplace safety log compliance), and cannabis industry-specific codes to ensure readiness for scrutiny. Regular training and compliance audits are highly recommended.
What Happens After the Audit?
Auditors finalize premiums by comparing estimated payroll and actual compensation. Overestimated payroll yields refund, while underestimated payroll results in premium increases. Misclassified workers or missing documentation can trigger penalties and compliance flags.
Audit-Proof Your Cannabis Coverage
Ready for your workers’ compensation audit? Protect your cannabis operation from premium surprises, let CannGen Insurance Services guide your audit prep, clarify job codes, and verify your records. Contact us today for a complimentary policy review and audit-readiness consultation, ensure your coverage is accurate and your business is fully compliant. You can also get in touch with our experts by calling us directly at (888) 751-3141.
Frequently Asked Questions (FAQs)
Why are audits critical for cannabis businesses?
Audits ensure premium accuracy, regulatory compliance, and risk protection for multi-class cannabis operations.
What records do auditors review?
Payroll summaries, tax forms, subcontractor certificates, job descriptions, and compensation logs are required.
What happens if payroll or code errors are found?
Policy premiums are adjusted, which may result in an increase or decrease. Significant errors can trigger fines or additional scrutiny.
How can cannabis operations minimize audit risks?
Maintain organized records, implement accurate class codes, train staff, and confirm all vendors’ insurance status.
