Though a premium audit may sound cumbersome, it's not a difficult process. Here's how to stay up to date and prepared over your policy period.
By Kelly Spors
Workers' compensation policies and other types of small business insurance policies generally need to go through a premium audit once they reach the end of their term. The reason? Your insurer based your policy's premium on estimates of your payroll and employee data or gross sales over your policy term — and now needs to find out whether those estimates were in line with reality. (If not, your premium for the ending term may be adjusted either up or down.)
Though a premium audit may sound cumbersome, it's not a difficult process. However, taking certain steps in advance can make it even easier on you and your company. Here are five key tips for surviving a premium audit.
1. Track Your Payroll and Sales Information — and Keep Them Up to Date
Periodically compare your actual payroll and sales data to the figures listed in your policy documents. If it appears that your payroll and sales are much higher or lower than the estimates, contact your insurance agent, who can make adjustments. This ensures that you have the payroll or sales information that your insurer will want to see during the audit and decreases the likelihood that you will need a significant premium adjustment at the end of your policy's term.
2. Classify Your Employees Correctly
Your workers' compensation premium is based on the type of work your employees do. So it's important to keep updated and accurate job classifications — as your insurer will want to see this information when it performs an audit.
The codes used to classify employees for workers' compensation purposes are typically those set and maintained by the National Council on Compensation Insurance (NCCI), though a few states have their own worker classification systems.
3. Keep Organized Financial Documents
A big piece of a premium audit is submitting up-to-date financial records, whether your recent quarterly 941 or Schedule C tax forms or your general sales ledger. The insurer will also want to see high-level information about all company owners, officers and partners, such as their titles, where they work, percentage of stock owned and their earnings over the audit period. Keeping these records organized and easily retrievable come audit time will only make the premium audit filing process much faster and easier for you.
4. Assess Your 1099s
Under state workers' compensation laws, certain contractors or subcontractors may be eligible for coverage under your workers' compensation policy — even if you issue them a 1099 and not a W-2. It's important to first make sure that anybody you've classified as an independent contractor is indeed not an employee, as the definition of an "employee" for insurance purposes differs by state.
5. Complete Your Audit Filings On Time
Your insurer will ask you to submit the necessary documents and information by a particular date. Be sure to meet that deadline. It will make the process more smooth and efficient and ensure that any premium adjustment is accurate.
A premium audit is usually a relatively quick process and you should get your results within a few weeks after you submit the requested payroll and/or sales information. By staying organized and preparing the documents and information your insurer will want to see during the audit, you can know you'll be ready for it.
Other articles in this series:
Workers' Compensation: What Is a Premium Audit?
Workers' Compensation: A Premium Audit Checklist
The information provided in these materials is intended to be general and advisory in nature. It shall not be considered legal advice. The Hartford does not warrant that the implementation of any view or recommendation contained herein will: (i) result in the elimination of any unsafe conditions at your business locations or with respect to your business operations; or (ii) will be an appropriate legal or business practice. The Hartford assumes no responsibility for the control or correction of hazards or legal compliance with respect to your business practices, and the views and recommendations contained herein shall not constitute our undertaking, on your behalf or for the benefit of others, to determine or warrant that your business premises, locations or operations are safe or healthful, or are in compliance with any law, rule or regulation. Readers seeking to resolve specific safety, legal or business issues or concerns related to the information provided in these materials should consult their safety consultant, attorney or business advisors.
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