Navigating Payroll Audits, Workers’ Compensation Surveys & Retirement Plan Reporting

 

As we move into August, it’s an ideal time for businesses to turn their focus toward compliance and internal review. Mid-year is behind us, Q3 is in full swing, and many organizations are preparing for fiscal year-end or budget planning for the upcoming year. One crucial area that often doesn’t get enough attention is payroll audits and compliance surveys, particularly those related to workers’ compensation and retirement programs.

These tasks aren’t just about ticking boxes, they’re about protecting your business, staying compliant, and ensuring that your employees are properly classified and covered.

Today we’ll walk through:

• What payroll audits entail
• How to prepare for workers’ compensation audits and surveys
• Key reporting and survey requirements for retirement programs
• Best practices to stay compliant and reduce audit risk

What Is a Payroll Audit and Why Does It Matter?

A payroll audit is a thorough examination of a company’s payroll processes, records, and reports to ensure compliance with federal, state, and local laws. Audits may be completed proactively by your company—or external, conducted by government agencies, insurance carriers, or retirement plan administrators.

Why You Should Conduct Regular Payroll Audits:

• Identify and correct misclassifications (e.g., independent contractors vs employees)
• Ensure tax compliance (federal income tax, FICA, FUTA, SUTA)
• Accurate overtime and benefits calculations
• Avoid costly penalties from the IRS, DOL, or state agencies
• Prepare for external audits—especially those tied to workers’ comp or retirement filings

August is a perfect time to do a mini audit. Mid-year data is complete, yet you still have time to fix any errors before annual reporting.

Workers’ Compensation: Audits and Surveys

What Is a Workers’ Comp Audit?

If your business has workers’ compensation insurance, you’re likely subject to an annual audit by your insurance carrier. These audits verify the payroll and employee classification data you submitted when you purchased or renewed your policy.

The audit ensures that:

• You’re paying the correct premium based on actual wages and duties
• Employees are classified accurately based on risk exposure
• Subcontractor and 1099 payments are properly reported

What Documents Are Typically Required?

• Detailed payroll reports by employee
• Job descriptions and duties
• Certificates of insurance for independent contractors
• Federal and state tax filings (941s, state unemployment forms)
• Time and attendance records

August Tip: Prepare Early

Many carriers begin sending out workers’ comp policy renewal surveys and audit notices this month to prep for the end-of-year cycle. Use this time to:

• Reconcile payroll data against job classifications
• Ensure subcontractor COIs are up to date
• Clarify ambiguous roles or cross-trained positions

Being proactive here can save you thousands in premium adjustments or penalties.

Retirement Programs: Compliance Surveys & Reporting

If you offer a 401(k), SIMPLE IRA, or other retirement plan, you’re probably familiar with the annual Form 5500 filing. But August also brings a wave of compliance questionnaires and census surveys from your plan administrators or TPAs (Third Party Administrators).

Key August To-Do’s for Retirement Plans:

1. Submit Employee Census Data

Your TPA will request updated employee information (hire dates, terminations, compensation, deferrals, eligibility). This data is used to:

• Perform nondiscrimination testing (ADP/ACP)
• Calculate employer match and vesting
• Prepare annual plan reports

2. Review Plan Eligibility and Participation

Ensure that all eligible employees are participating or have signed a waiver. Errors in eligibility can lead to serious DOL issues.

3. Check Plan Contributions and Limits

The IRS sets annual limits for contributions. Over-contributions must be corrected before tax filings.

4. Look Out for Survey Requests

Some retirement service providers send out fiduciary compliance surveys in August. These are critical to maintaining your plan’s qualified status.

Best Practices for Payroll & Compliance Success

1. Automate Reporting Where Possible

Use your payroll software to generate custom reports by classification, earnings, and job codes. Automation ensures consistency and minimizes errors when sharing data with insurance and retirement plan vendors.

2. Review Classifications and Compensation Structures

Audit your job roles to ensure they align with correct workers’ comp and IRS codes. Pay close attention to:

• Exempt vs. non-exempt status
• Overtime eligibility
• Departmental risk levels

3. Stay in Sync with HR and Finance

Changes in staffing, pay, or benefit eligibility must be communicated across departments. A lack of cross-functional communication is one of the biggest sources of errors during audits.

4. Partner With a Payroll Pro or Consultant

If you’re unsure how to handle classifications, comp audits, or retirement compliance, consider partnering with a payroll consultant or HR outsourcing firm. August is a strategic time to bring in help before Q4 deadlines approach.

Key Dates to Keep in Mind

August 15: Ideal internal deadline to finalize employee census for retirement plans

August–September: Workers’ comp insurance carriers begin requesting audit data

October 15: Extended deadline for Form 5500 filings

December 31: Final cutoff for payroll classification corrections before year-end reporting

August is Audit Awareness Month

August is often viewed as a quiet month in the payroll world—but it’s one of the most valuable times to double-check your data and compliance practices before the end-of-year rush. Whether you’re preparing for a workers’ compensation audit, responding to a retirement plan survey, or conducting your own internal payroll review, taking time now can save you major headaches later.

So, make August your Payroll Audit Awareness Month—and set your business up for success through the rest of the year.

Need Help With Payroll Audits or Compliance Surveys?

If you’d like support conducting a payroll audit, preparing for a workers’ comp review, or submitting retirement plan census data, consider working with a payroll service provider or compliance consultant. Getting ahead now means peace of mind later.

 

 

 

Avid Payroll

Payroll@AvidPayroll.com

970-223-4913