Premium Audit FAQs

PREMIUM AUDIT FAQs
These are some of the most frequently asked questions regarding the premium audit process. If there is something you are wondering about that isn’t covered here, feel free to contact your auditor.

Why do I need to complete an audit?
When your policy is issued, the premium charge is estimated based on historical records of your business operation. At the end of the policy term, an audit is conducted to determine your actual exposures during the policy period so that your insurance carrier may adjust your premium accordingly. It also allows them to ensure that your current policy has the most accurate class codes and estimated premiums based on your current operations. Specifically, for Workers’ Comp coverage, state laws require audits.

How is my audit completed?
There are four types of audits.  Your audit type is determined by your insurance carrier.  They send us the audit order with the audit type specified:

1) A physical audit, where you meet with your auditor in person to review your documentation.
2) A virtual audit, where you will upload your documentation to a secure online portal and then review it virtually with your auditor.
3) A telephone audit, where you will conduct the audit over the phone with your auditor.  You do have the option of uploading your information to a secure online portal, then reviewing it with your auditor.
4) A mail/self audit, where you will complete audit forms and return them to your auditor with supporting documentation.  These can be completed online or physical forms may be mailed, faxed, or emailed back to us.

You always have the option of requesting a different type of audit from your insurance carrier.  Just contact your agent so they can request it from your insurance carrier..

If I misplace the virtual audit letter containing my username and password, can I get another copy?
Yes. Contact us at our toll free number 800-356-7346 to speak with an operator who will help you with your request.

Can I receive a copy of the auditor’s worksheets?
Yes. But, you will need to request them from your insurance carrier, as we are not allowed to release them.

What if I disagree with my audit results?
You can submit your dispute to your insurance carrier by contacting your agent.  Once we have completed the audit, we no longer have an open file, so the re-open request must come to us from your insurance carrier.

PREPARING FOR AN AUDIT

Premium audits are much easier when you know what information to gather and how to keep it organized. Follow these steps to prepare for a premium audit:

Be Present
Have the person who knows the business present during the audit (owner/partner/corporate officer, etc.). Businesses can fluctuate, which can affect premiums. By addressing audit questions up front with the person who knows the business best, we can save you time and have a better picture of what to expect as the audit process continues.

Provide Necessary Business Records
• Payroll records—Gross Pay, Overtime Pay, Severance Pay
• Quarterly reports FICA 941 and state unemployment
• Amounts paid to subcontractors
• Provide a detailed listing for each subcontractor, including date and amount of each payment; totaled by subcontractor.
• Provide original invoices from uninsured subcontractors, breaking out material and labor costs.
• Certificates of insurance on subcontractors
• Your check register or general ledger
• Your most recent tax return
• Any recent claims information
• If you have OCIP/CCIP projects, please provide the following for each project: monthly certified payrolls, insurance certificate(s), declaration page(s) of the policy, physical address of each project, name of the owner or contractor of the program, the project name, and the contract number.

What is your legal entity?
• Sole Proprietor, Partnership, Corporation, LLC, or LLP

Clarify Your Officers and Owners
• Who are the officers, and what are their duties?
• Are they included or excluded?
• What is the entity type?
• Sole proprietors and members of LLCs are treated differently from state to state. States have different minimum, maximum, and flat amounts for officers, members, partners, and sole proprietors of a business.  If they are included, it is important to know these amounts. Please work closely with your agent to determine your needs.
• Officers of corporations are automatically included on WC unless an endorsement is on file to exclude from WC coverage.

What are your operations?
• Please provide details about all of your organization’s operations including: what, where, and how the operations are done.

Do you have any employees who qualify as a Standard Exception?
• Clerical 8810 – All work performed in an office, including record keeping and correspondence duties.
• Telecommuter 8871 – For clerical work from home (not the office location). Use 8871 if 50% or more of the employee’s time is spent working from home. If the insured’s only office is the home, use code 8810.
• Drivers 7380 – Delivery of material and equipment owned by the policyholder. If the material or equipment being delivered supports a class code that includes drivers, class code 7380 does not apply.
• Salesperson 8742 – Works from an office and travels out of the office to meet with customers in an office environment.  May visit a job-site before work is started and after the work is completely finished, but may not visit a job-site while in progress.

Do you have any General Exclusion operations?
• Aviation
• New Construction
• Stevedoring (loading and unloading ship cargo)
• Saw Mills
• Day Care Centers
These are operations that are usually not included within the scope of basic class codes, unless the class code specifically states to include these operations.

Do you have any General Inclusion operations?
• Maintenance and repair of insured’s equipment/buildings
• Manufacture of containers for insured’s products
• Medical facilities for insured’s employees
• Printing by insured of their own products
These are operations that are usually included in the scope of the basic class code, unless the class code specifically states the operation must be classified separately.

Do you have any employees who perform Miscellaneous Employee work?
• Direct Supervisors
• Building Maintenance on the insured’s buildings, such as their office or warehouse
• Job-site Cleanup—including finish cleaning
• Traffic flagman
Miscellaneous Employees perform duties that are common for separate operations subject to more than one basic class.
Miscellaneous Employee exposure is assigned to Governing Class—the basic class code with the most payroll.

Check on Your Subcontractors
• Are they insured or uninsured?
• Require a Certificate of Insurance (COI) from subcontractors prior to them coming on site.
• A COI should be obtained before a subcontractor performs any work, at the beginning of each new project, and quarterly for the duration of each project, at a minimum.
• You put yourself at risk if you do not ask for the COI immediately. Check the issued date, the insurance carrier, policy number(s), policy dates, and verify the name on the COI matches the name the check is made out to when paying the subcontractor.
• A binder or certificate with TBD or TBA for the policy number is not valid.
• Handwritten certificates are not acceptable.
• Be sure they have the adequate limits on the General Liability for your work. Check with your insurance carrier to find out their minimum acceptable limits.
• Get new certificates quarterly to avoid cancellations that may occur or policy lapses between certificates received.
• Verify your organization is listed as a certificate holder on the COI and that the COI was provided by subcontractor’s insurance agent.
• See Sample Certificate of Insurance (COI):

Know the Difference Between Subcontractors’ Labor vs. Material
• Workers’ Compensation—When using uninsured subcontractors, seek documentation to show that a definite amount of the subcontractor price represents labor costs.
• If the subcontractor is a mobile equipment operator with drivers, then no less than 33 1/3 percent of the contract price will be applied as exposure.
• If the subcontractor price includes labor and material, then no less than 50 percent of the contract price will be applied as exposure.
• You must furnish original invoices from subcontractors to substantiate the labor cost.
• If the subcontractor price includes material, but the invoice does not, break out the cost of material, then no less than 90 percent of the contract price will be applied as exposure.
• If the subcontractor price is for labor only, then 100 percent of the contract price will be applied as exposure.
• General Liability Insured Subs: Use the total amount paid to the subcontractor, inclusive of materials.

Why am I being charged for my insured subs?
If a subcontractor has WC insurance, the subcontractor’s exposure is excluded from the WC audit. However, if a subcontractor has GL insurance, the sub’s exposure is assigned to an insured subcontractor classification on the GL audit.  Refer to your insurance carrier for additional explanations.

Classify and Separate
• Keep your records classified by job-site/location. In most cases, classifications for the general contractor are assigned by job or location if the proper records are maintained.
• The assignment of the appropriate contracting classification for a particular type of work may vary according to whether your business is a specialty or general contractor. Project classifications may apply for residential and commercial general contractors, but additional classifications may apply to the operations, if proper records are maintained. A specialty contractor is a contractor who is hired to perform a single operation of a larger construction project. A specialty contractor is assigned to the one classification that best describes the insured’s operation at the job or location—for example, plumbing, electrical wiring, wallboard, etc. is used for specialty contractors.
• It is necessary to maintain actual payroll records to assign an employee to multiple class codes. If these records are not maintained, assign the employee to the class code with the highest rate that the employee has exposure to (interchange of labor).

Make Classifications by Job Duty (Not Job Title)
• Classifications are made based on job duties and exposures, not job title.
• Clerical persons remain in the office and occasionally go to a bank or run an errand. They do not go to the job site or clean the office.
• Salespeople travel to meet the customer.
• Executive supervisors do no physical work. They have no direct supervision of employees, contract labor, or subcontractors. They work in the office a majority of the time. They do not load or unload trucks, pick up supplies, clean job-sites, or set doors, etc.  They have a foreman at the job sites reporting to them.

Determine Remuneration
• Use Gross Pay not Net Pay.
• Vacation Pay, Sick Pay, Holiday Pay, and Bonus Pay are all included in the remuneration of Gross Pay for each employee, and is assigned to the class code that most of the individual employee’s payroll is assigned to.
• The premium portion of overtime (usually 1/3) is excluded if the proper records are kept.
• True Severance Pay is excluded, payments for unused vacation time is included.
• Gas mileage, and out-of-town food and lodging payments could also be excluded if properly documented.

Stay Organized
• Use a three-ring binder for alphabetizing and storing certificates.
• Store your audit info in a binder for reference the next year.
• If you use Quickbooks, the 1099 Detail Report is utilized to obtain subcontractor payment info.
• If you don’t use accounting software, your check stubs or register may be used to determine the amount paid to subcontractors.