Preparing for Your Audit

Preparation for your premium audit is important to ensuring an efficient and positive audit experience. Keeping your agent informed of significant changes to your business throughout the year is another way to ensure your policy is up to date and minimize any surprises at the time of the audit.

Detailed recordkeeping can also allow you to take advantage of money saving tips.

Workers Compensation and some General Liability policies are based on gross payroll. Gross payroll includes: wages, bonuses, holiday pay, sick pay, commissions, overtime pay, and vacation pay.

What Records Will I Need?

The premium auditor will request and review the records needed based on your coverages and classifications. In most cases the auditor will request the following records:

  • Monthly/Quarterly Payroll Journals
  • Quarterly State Unemployment Reports
  • Federal 941 Tax Reports
  • Payments made to Temporary and Leasing Companies
  • Profit and Loss Statement
  • Payroll Summary Report (for QuickBooks Users)
  • Payments made to any casual, 1099, or cash type laborers.

Payroll records should be supplied for each entity insured on your policy. Payroll should be broken down by company, state, employee and job title. The type of work performed is critical to ensuring your employees are properly classified on your policy. These requirements also apply to all officers, members, sole proprietors and partners involved in your business.

Helpful Tips

  • Construction Wrap Up Programs: If you are engaged in either an Owner Controlled Insurance Program (OCIP) or Contractor Controlled Insurance Program (CCIP), our auditor may request certified payroll reports for these specific projects in addition to a Certificate of Insurance (COI) issued to you by the OCIP/CCIP administrator.

  • Overtime Deduction: The amount paid in excess of straight time pay can be deducted if the excess portion can be verified by your payroll records. Your records must show summarized overtime amounts paid by employee. (Pennsylvania and Delaware do not allow payroll reduction for overtime)

  • Division of Payroll: Division of an individual employee's payroll to more than one classification is not allowed except for construction or erection operations. For construction and erection operations the payroll of an employee may be allocated to each type of work performed if proper records are kept (percentages are not acceptable). Payroll cannot be divided between construction, office, and sales classifications.

  • Tips: For Restaurant Operations, tips may be deducted if your payroll records are properly maintained.

The basis for general liability premium is often gross sales. Gross sales are the amount charged by you to others for all goods or products sold and distributed and for any other operations or services performed by you for others.

What Records Will I Need?

The premium auditor will request and review the records needed based on your coverages and classifications. In most cases the auditor will request the following records:

  • Monthly Sales Reports
  • Monthly State Sales Tax Reports
  • General Ledgers
  • Income/Profit and Loss Statements

Gross revenues should be broken down by entity, state and location.

Helpful Tips

The following may be deducted from gross sales if properly documented in your financial records:

  • Returns and Allowances (by entity, state and operation)
  • Freight/Delivery Income
  • Sales Tax Collected

Sales tax collected and submitted to a government agency

If you are a contractor, to help control the cost of your insurance you should obtain proper certificates of insurance from every subcontractor you hire prior to the commencement of work. A valid certificate of insurance will provide evidence of Workers Compensation or General Liability coverage for a specific policy term and can be obtained from the subcontractor's insurance agent.

Subcontractors who fail to provide a valid certificate of insurance may be charged as an employee which can increase your premium.

What Records Will I Need?

The premium auditor will request and review the records needed based on your coverages and classifications. In most cases the auditor will request the following records:

  • Check Disbursements Report
  • Vendor Payment Report
  • General Ledger
  • 1099’s
  • Income/Profit and Loss Statements
  • Certificates of Insurance for each Subcontractor

Helpful Tips

  • The certificate of insurance should cover the period the subcontractor performs work for you. If the subcontractor's work extends beyond the expiration date of their certificate of insurance, a new certificate of insurance should be required. Current and expired certificates of insurance should be kept and maintained in an electronic file or binder.
  • You should read or have your insurance agent or attorney review every contract before signing to ensure the subcontractor is not transferring liability back to your business.

If applicable, have all Independent Contractor Statement (ICS) forms and Certificates of Insurance in order and up to date prior to the audit.