Workers' Compensation Insights: Controlling Premium Audits
Continuous change in the economy and the work your construction company conducts makes predicting payrolls and sales difficult. As such, your beginning workers’ compensation premium is only an educated estimate. A premium audit is conducted after the policy term expires in order to determine your actual business activity and rates.
An auditor representing your insurance company will contact you a few weeks after your policy expires. They’ll visit your office, check public information online (so make sure it’s accurate), look at your financial records and ask a few questions as needed. Generally, an audit should take no more than an hour or two. Despite the short time period, it’s vital to elect a primary contact that’s familiar with employees’ job functions and class codes. The primary contact should work directly with the auditor. The contact should also clear his/her schedule to give the auditor their full attention and create a much smoother process.
While insurance companies strive to be as accurate as possible, they don’t have the time or resources to investigate and resolve every possible error or ambiguity that presents itself. As a result, your construction company may experiences multiple, unintentional overcharges. If you know the rules, you can take control of the audit process by anticipating and preparing the exact information your insurance company needs to prevent inadvertent overcharges, saving your company money in the process.
Creating an Accurate Premium Audit Package
To prevent overcharges, you need to take control of the process and create an “overcharge-proof” premium audit package that will give the auditor complete and accurate information to work with. To begin, collect the following:
- Payroll records (employee specific)
- Unemployment tax return
- 1040 Schedule C (if you’re a sole proprietor)
- Federal and state payroll tax reports (940s and 941s)
- General ledger, subcontractor ledgers and journals (or 1099s)
- Certificates of insurance from subcontractors
- Your workers’ compensation insurance package
Outside of the audit package, set up quarterly reviews with your broker to compare projections with your payroll. This will allow you time to make any adjustments.
It’s recommended that you only use employee-insured subcontractors, requiring them to present relevant certificates of insurance before commencing work. Provide these certificates to the auditor in order to save on premium. If you do utilize uninsured subcontractors, they must be treated like employees for workers’ compensation purposes. In these cases, be sure you report only their payroll to the auditor (excluding the cost of materials or other supplies that a contractor may be charging to you).
As a helpful reminder, be sure to review the auditor's findings (payroll totals, sub costs, employee classification, etc.) before his/her departure. Reviewing the audit is very important to avoid subsequent follow up phone calls.
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