Requirements and Expectations of a Premium Audit

A workers’ compensation premium audit can involve inspection of accounting records, including general payroll reports, quarterly state and federal tax returns, general ledgers, cash disbursement journals and more. Access to these detailed operational records is critical when meeting with an auditor.

“During the policy period, a company can grow or downsize, acquire another organization or add new locations—all of which can substantially change their exposure from policy inception to expiration,” said Dan Berns, Vice President – Account Services. “The goal is simply to accurately determine the appropriate amount of premium for the exposure, and the more information an auditor has to work with, the better.”

An organization can ensure accurate audit results by preparing the required documentation.

What Records Are Likely Required

In general, you will be asked to provide records related to your company’s payroll (which may also be referred to as remuneration), gross sales, gross receipts, other general liability policy basis or final vehicle count by state and by vehicle type (commercial auto).

Remuneration inclusions consist of:

• Wages and salaries, including retroactive salaries. Examples include payroll registers, Employer’s Quarterly Federal Tax Return Form 941 or 943 reports, State Employer’s Quarterly Unemployment Insurance Tax reports, Federal 1099s, 1096s, W2 and W3 transmittals, check registers, canceled checks, bank statements, general ledgers, job cost records, profit sharing reports, prevailing wage determination sheets, etc.
• Contractor/Subcontractor records
• Commissions (and draws against commissions)
• Bonuses (including stock bonus plans)
• Overtime pay
• Pay for holidays, vacations or periods of sickness
• Payment on any basis other than time worked such as piecework, incentive plans or profit sharing plans
• Employer payments for amounts otherwise required by law (i.e. Statutory insurance, Social Security, etc.)
• IRS Qualified Salary Reduction Plan (i.e. 401k) (refers to the employees contribution and any qualified agreement between the employer and the employee to pay into a retirement plan in lieu of direct wages)
• Employee Savings Plans (only the amount given by the employee, not the employer’s match)
• Contributions to an IRA made by the employee
• Payment or allowance for tools
• Value of housing/lodging and auto allowances
• Value of meals
• Substitutes for money (merchandise certificates, store credit, etc.)

What to Expect When the Audit is Complete

Once the physical audit information for your company has been gathered, the auditor will review and apply the premium credits for which your company qualifies. Typically, your auditor will collect the information necessary to complete your premium audit and send it to your insurance carrier.

Your carrier will compare the audited results to your existing policy. Then, they will determine the final premium based on actual exposures and compare that to your estimated exposures and premium. If your exposures increased during the term, an additional premium will likely be due (unless a pre-determined minimum premium applies). If your actual exposures are less than the estimated exposures, you may be due a return premium.

Typically, you will then receive the results of the physical audit, along with the breakdown of the premium audit calculations.