Business owners are commonly contacted about completing a premium audit after a policy expires or is canceled. The audit process is meant as a service to you that guarantees you simply pay the premium that you simply owe.
What is a Premium Audit?
The primary purpose of a premium worker compensation audit is to calculate your final premium. When your policy was issued, the premium was an estimate of an exposure basis (usually payroll or sales) multiplied by a rate. the speed used is decided by how the exposure base is assessed. The audit will examine your records to determine the particular exposure basis and confirm that the right classification codes and rates are utilized in determining your final premium. Because the first premium was an estimate, the audit will most likely end in a change of premium and/or classifications for your business.
Premium audits are commonly performed on General Liability, Liquor Liability, and Workers Compensation policies. By auditing these policies, we can make sure that your business pays the correct premium. Typically, information from the audit will generate either a bill or a refund. In addition, the premium audit can provide valuable information about your business operations.
Types of Insurance Premium Audits
Physical Audit
A physical audit is an on-site review of your business records by an auditor. If your business records are located at an address aside from your policy address, like an outdoor accountant’s office, you'll get to notify the auditor.
Mail Audit
If a physical audit isn’t performed, you'll be asked to finish an audit through the mail. you'll be asked to incorporate supporting records, like copies of tax reports. you'll even have the choice to finish your audit online.
Preliminary Audit (for Assigned Risk Pool Policies)
At the start of your policy term, the auditor will review a representative period so as to project the premium for the complete policy term.
Information Needed for an Insurance Audit
Listed below is typical information an auditor may request at the time of the audit. If there are multiple companies or multiple entities insured under one policy, the auditor will request this information for every company or entity.
General Information
- Description of company operations
- Officers’/Owners’ names and titles
- Employee names and job duties
- Number of employees at each location
- Names of subcontractors and certificates of insurance for subcontractors
Payroll Records
- Gross pay including, but not limited to: bonuses, commissions, holiday pay, sick pay, overtime pay, vacation pay, and every one pretax amount
- Pretax/Section 125 amounts/401(k) amounts
- Overtime pay is shown separately
Subcontractor Information
- General ledger, cash disbursements book and checkbook register
- Names of subcontractors and certificates of insurance for subcontractors
Tax Documents to Verify Payroll/Sales Records and Federal ID Number
- 941, 940, 1099, W-2, W-3, income tax return, etc.
Sales
- Gross sales for each type of service provided/work performed by location
- Profit and loss statement
- General ledger
Additional Information Typically Requested for Restaurant and Bar Audits
- Tips are shown separately
- Number of free meals given to employees
- Subcontractors providing live entertainment
- Liquor sales and total sales to determine the proper class for Workers Compensation
Insurance Premium Audit Definitions
Payroll
Payroll premium bases are used for Workers Compensation and Commercial General Liability policies. Payroll includes, but isn't limited to: hourly and salaried payroll, bonuses, holiday pay, sick pay, vacation pay, commissions, piece work, and profit-sharing. Also included within the payroll premium base are meals and housing provided for workers, allowances for hand tools, expense allowance not supported receipts, and amounts wont to reduce taxable wages like cafeteria plans and deferred compensation plans.
Payroll excludes tips, overtime premium, severance pay (not accumulated vacation or wage paid out), expense reimbursements supported receipts, third-party wage, excess life assurance, personal use of a corporation auto and certain company perks (such as incentive vacations, club memberships or tickets to entertainment events).
Gross Sales
Gross sales premium bases are commonly used for Commercial General Liability and Liquor Liability policies. gross revenue includes, but aren't limited to, total amounts charged for all goods and products sold and services performed. gross revenue excludes nuisance tax, returns, and allowances. Cash discounts aren't excluded.
Subcontractors
You must obtain Workers Compensation and General Liability certificates of insurance for all subcontractors hired. If the subcontractor doesn't provide you with a certificate of insurance, they're going to be treated as your employee and a premium is going to be charged for them. The premium for uninsured subcontractors are often substantial, so it's to your advantage to get proof of insurance from subcontractors.
Uninsured subcontractors covered under the principal contractor’s policy are classified on the idea of the classifications that might apply if the work were performed by the principal’s own employees.
