“Hi John Smith, I am John from Anystate Insurance Company and I need to schedule your premium audit.” Do you sound familiar? Do you think of reasons to make him stop? Do they really exist? Or are you simply horrified by the consequences of this decision? If business is experiencing a decline in sales or payrolls, then you should immediately get him in. This will result in higher return premiums. Audits don’t have to be scary. Audits can be smooth if both sides are prepared and informed.
When conducting an audit, the first thing to ask is “What type of audit?” There are three methods to conduct an audit: mail, telephone or physical. Mail audit is intended for smaller employers. It is typically sent 10 days before expiration. A second notice is sent if there is still no response. Trust me, don’t let it get beyond that. Telephone audits can be explained by themselves, for obvious reasons. Finally, and perhaps most prominent, the physical audit. The auditor visits your books/records to “physically” audit them. I’m certain most of you are familiar with this method.
General liability and workers’ compensation audits will be the focus of this discussion. However, you should also be aware that automobile audits are only applicable to large fleets. They are written on a composite rate.
Now you have scheduled an appointment with the premium auditor. Now what? Now what?You will also need your 941’s. You want everything to run smoothly. Make sure that your payroll summary is in line with your 941’s.
You must have certificates of insurance for any subcontractors you use during the year. Also, ensure they have sufficient limits. You will be charged if the limits are lower than what your insurer requires. You will be charged for the payroll of your subs if you do not have certificates. If you’re involved in OCIP, ensure you have certified payrolls. This is because these payrolls are not covered by your policy. It is essential to ensure that your sales and payroll records are correct for each class code. The auditor requires exact numbers and not percentages. To prove that you are qualified for a construction credit credit, get confirmation from the WC Bureau.
A payroll audit should not be performed without a thorough understanding of the important exclusions. They include overtime premium, severance, tips, gratuities, payment of military duty, uniform allowances. Club memberships, entertainment expenses, stock options, and stock options (if they are run through payroll).
There are also important inclusions that you need to be aware of. These include bonuses, commissions and draws from commissions, vacation pay and holidays pay, wages under the Davis Bacon Act, section 125 plans, and commissions and commissions.
When you’re having a sales auditor, you should separate the foreign sales. You pay a lower rate (products section). Your sales ledger will be used by the auditor for audit purposes. Make sure it is accurate. A sales audit will also require you to be aware of what is exempt. Excluded are, for example, sales and excise taxes submitted to government, finance charges, returns and allowances (or repossessed real property), as well as freight charges (if they are shown separately on the invoice). Gas taxes cannot be excluded as they are not separately collected.
While proper documentation is important for audits, it’s just as important to avoid certain things. These are: don’t miss an appointment; be assertive; and, lastly, don’t be dishonest about trying to wrongly classify employees. It is easy to get into trouble by incorrect, intentional classifications of employees. Don’t do it!
You have the right to dispute an audit decision if you are not satisfied with it. The disagreement must be written and specific. Make sure you do it soon. Avoid waiting until the last minute to address the problem. Insurance companies know that this is a common tactic used by insureds. Insurers usually respond within 48 hours.
Audits should not be something you fear unless you are trying to hide anything. Audits should go smoothly if you have all the information in the right format.