How to prepare your annual premium audit There are 3 types of accounting
information you will possibly need for your audit;
1. Payroll information for each employee who is reported for taxes and unemployment
2. Cash payment information for each person paid cash but not reported for taxes
2. Total cost of labor and materials for each subcontractor used, and you will also need to
provide certificates of insurance for subcontractors
3. Revenue information for the business.
4. Description your business explaining what your company sells and what the processes are
Payroll information is needed for each employee, with separate totals for each different state the
employee worked in. If an employee does more than one type of job and you keep records of
amounts paid for each type of work you should report the employees payroll in that manner. If you
are allowed to split the employee’s wages into different workers compensation classes the audit
department will make sure the payrolls are allocated correctly. There are also adjustments allowed
for overtime paid, tips documented for restaurant employees, and certain imputed income amounts.
Officer and owner information for the business is very important. You should clearly indicate the
name, title, earnings if a corporation, and type of work the officer does. Be sure and list the actual
tasks the owner does rather than just a job title. The only officer to list is someone who is listed in a
corporate resolution as an officer, so do not list appointed officers who have a title but are not
formally named in the corporate resolution.
Unemployment reports you file each quarter are used to reconcile the gross payrolls reported. You
will need the reports that were filed during the quarters your policy was in force so that you can
record the total gross payrolls reported and compare these to the total earnings from the payroll
system. The 2 numbers should match after quarterly gross amounts are adjusted for any time
difference between your policy period and the calendar quarters used. Adjustments for section 125
amounts if not included in the unemployment gross reported are important since section 125
payments and 401K payments must be included for insurance audits, but are not always included for
unemployment reporting depending on what state you are doing filings in.
Adjustments are amounts that will be deducted from payroll before calculating the final premium.
Special types of earnings include overtime, severance paid, auto allowances paid to reimburse actual
expenses, most fringe benefits the IRs considers income, 3rd party sick pay, and IRS imputed income
amounts such as personal use of company car. You should report these and the audit department will
know how to treat the deductions. In addition in California Section 125 and 129 amounts deducted
are excluded from payroll, in all other states these amounts are included.
Subcontractor costs and Cash workers are the total amounts paid to these people who did work for
your customers. These amounts are listed along with the type of work the subcontractor did and
information from the certificate of insurance. The spreadsheet download is a great format for listing
these subcontractors. Make sure you get certificates of insurance for all subcontractors, since they
will be included as employees if they cannot provide proof of insurance. All subcontractors who are
in business for themselves are potential employers and should have workers compensation policies in
force. If they have no employees these subcontractors receive refunds of most of the premium paid
for those workers compensation policies so there is no reason to be in business without a workers
compensation policy! General liability insurance is also essential for a true business to operate, and a
subcontractor who works for you without being properly insured will be included on your audit as an
employee.
Sales information is used for general liability policies for retail and manufacturing businesses. It is
often easier to include an income statement than to list sales separately especially if you have several
class codes on your policy. If your gross sales include sales tax be sure to list the tax also, because
taxes collected and remitted to the government are not included for insurance calculations. Returned
merchandise is also not included, however discounts are included in the calculated premium.
Description of Operations that is accurate for your business is very helpful for underwriting and
helps ensure your premiums are accurate. If you include the type of business, retail or wholesale,
tools and equipment used and business processes the underwriter can get a better idea about your
specific company.
That's it! That is all that is needed to complete the audit process every year, and if you ever need
help please feel free to call anytime.
Premium Audit checklist
1. Assemble payroll information including quarterly unemployment compensation reports
2. Assemble amounts paid to subcontractors and certificates of insurance for workers compensation
and general liability for all subs
3. Have income statement info for sales based general liability policies
4. Select a format - spreadsheet, form, or call from telephone auditor
5. Provide the information
6. Call any time with questions