Small business owners and workers compensation L&I audits in Washington

All employers in the state of Washington must maintain workers’ compensation insurance for their employees. The Washington State Department of Labor & Industries audits employers infrequently. Your notice will come in the mail, which is why it is so important to keep a central office location for all of your paperwork. Your audit notice will include a pre-audit questionnaire. This questionnaire is a legal document, so you want to review it very carefully before you sign.

There are some common themes in which business owners are selected for an audit each year:

  • Your business paid a workers compensation claim after an injury. An injury will often trigger an audit.

  • You have been audited in the past and paid a fine. L&I employees frequently return to the same employers over and over.

  • Your business may be part of a “target” industry for L&I that year. For example, the Department has emphasized audits for staffing agencies and telecommunication companies in past years.

  • Someone has filed a complaint against your business.

  • A compliance review at a construction site turned up red flags, and every employer involved is being checked by L&I again.

  • A contractor or subcontractor you worked with was audited for workers compensation and L&I investigators are looking into everyone connected to that employer.

  • Your small business was chosen at random. Sometimes L&I just picks a name.

What to do if you have been audited

Some business owners will be able to handle a workers compensation L&I wage audit without support. If your records are up to date and easily available in digital form, then you can simply give the L&I auditor a thumb drive, or set up a drop box, and you should have very little trouble. If the auditor begins asking questions that you can’t answer, or you don’t want to have to be available to answer questions as frequently as the L&I auditor is asking, then you might want to consider asking for support.

If you’d like to start on your own, and see how it goes, here are some helpful tricks:

1) Don’t waste your valuable time arranging the records for the L&I auditor. The auditor will expect an overwhelming amount of material. They’re used to it. They will ask for anything they need that is more specific regarding time records, wages, risk classifications, or evidence that an employee or group of employees were categorized correctly.

2) Don’t answer questions from the L&I auditor when you’re doing something else. (Obviously this is not always possible). It’s easy to miss what the L&I auditor is really looking for. The L&I auditor might ask about your office staff, leading you go out of your way to prove that they are office staff preforming office duties. But really you may have just talked yourself into a fine. The auditor may be asking about your office staff because they spotted a batch of materials stored in the wrong room, with your office staff, and you’re about to have all your office workers reclassified into a higher-cost risk classification category because your office staff aren’t separated from storage by a wall. (See our guide below for more information). Don’t assume.

3) Don’t argue with the L&I auditor about anything related to workers compensation or the rules. Most auditors will be friendly and helpful. But a few use some tricks to get higher fines. One common trick is to bait you with insults “Don’t you know?” “A good business owner would be aware..’ (and what they’re saying may or may not even be true). “You have to…” Anyone would be surprised and feeling defensive. But once you get angry, the auditor can discount your answers, reclassify your workers, and leave you to defend your business in the expensive, complicated, and notoriously unreliable appeal process.

4) Don’t ask for an L&I supervisor. to review your workers compensation auditor. Washington State’s culture and rules generally discourage L&I supervisors, or any other state agency staff, from siding with the public against a state employee. All that will happen is that the employee will work harder to make you look bad, to justify their earlier bad behavior toward your company. So many nice, polite, reasonable small business owners learn this lesson the hard way. If you are being treated rudely, document it. Ask for better treatment, but don’t try to push your company’s issues up the chain of command unless you can create a plausible excuse, such as if your auditor becomes unresponsive, or if you have a question and your auditor is not immediately available. And always phrase your question as, “I just want to be sure I’m doing this right…” don’t accuse the auditor.

Common snags for a WA State L&I workers compensation wage audit

Avoid the traps many Washington State business owners find during wage and labor audits by the Washington State Department of Labor & Industries:

1)Construction companies without a main storage space/yard work to qualify for “Permanent Yard or Shop” under WAC 296-17A-5206-79. L&I in Washington will only allow workers to be reported for this lower payment if the shop is for storage and maintenance only. Auditors will look for a shop that combines functions in one storage space and ding the employer for a higher risk classification for all employees.

2) Construction or other types of manufacturing companies where office staff share space with storage materials or a workshop space. L&I auditors will watch for office staff in a shared space without a wall between office employees and a workshop or a storage space, and if there is no physical wall the business owner will have to pay a higher wage rate classification for office staff.

3)Office staff who are sent to purchase supplies for a business that are not strictly office supplies. Auditors in Washington’s L&I Department will ding employers for any office staffer who is used to buy materials that are not strictly office supplies under WAC 296-17A-4904

4)Business owners who work without any employees on a job site. Business owners are normally exempt. However, if  L&I auditors find a business owner working alone on a job site as a laborer without any other employees present, they will require that the hours spent on the job site be reported as if the business owner were a worker.