As you may know, workers compensation and some general liability policies are subject to an audit.
A Good Faith Estimate…
The premium basis for workers compensation policies is based on payroll and depending on the classification the premium basis for general liability policies can be payroll, sales, area, admissions, or some other factor. For those policies that are audited, a good faith estimate is provided to the company when the policy is written.
…Then an Audit
An audit is done at the end or in some cases during the middle of the policy term to determine and accurately calculate the exposure. If the audit exposure was determined to be high, usually a refund is given but if the exposure was determined to be to low an additional premium charge is applied.
It is important to complete audits in a timely manner otherwise you may face a penalty such as an estimated audit or your policy being nonrenewed as a result of noncompliance.
This is particularly important for workers compensation policies. Also if you are a one person operation (proprietor, LLC or corporation) the insurance company will still want you to tell them if you did or did not have an employee and if you did have an employee, their payroll. They will also ask about payments to subcontractors and will require that you provide certificates of insurance for the subcontractors.
If you have a workers compensation policy and you use subcontractors who do not carry workers compensation, insurance carriers have been starting to charge the subcontractor costs as if they were employee payroll. More companies have taken this position in the past few years. The audit may be a form that the company asks you to complete and return, a telephone interview, or a face to face meeting at your business. They may also ask for copies of 941 or UC2 forms.
We Can Help
We are able to help you to complete the forms and return them to the company. If you are not sure what is required call us to discuss the requirements.
Nick Kozlowski, Randy Riegner, or Debbie Riegner can answer your questions.