YOUR INSURANCE AUDIT
HOW TO SAVE TIME AND MONEY
WHAT IS AN INSURANCE AUDIT?
Insurance audits are typically performed on commercial
insurance policies providing workers compensation, general
liability, garage liability and umbrella coverages. When
these policies are issued, you are asked to pay an estimated
premium. Estimated premiums are based on the nature of
your business and your estimate of exposures (i.e. payroll,
sales, etc.) for the policy period.
Once your policy expires, we conduct and audit (collecting
information on actual exposures and operations). From this
information, we determine the final earned premium. Premium
adjustments are then determined by comparing audited exposures
and operations with those originally estimated.
WHAT RECORDS ARE NEEDED FOR THE AUDIT?
Records are important to the audit process. They provide
and verify information, save time and minimize your insurance
costs. The field auditor will let you know which of the
following records will be needed for your audit when the
audit appointment is made.
-
PAYROLL
RECORDS – includes payroll journal
and summary, federal tax reports (941’s), state unemployment
reports and individual earnings records. Totals should
be kept for overtime when applicable.
-
EMPLOYEE RECORDS – including the number of employees
and hours, days or weeks worked annually.
-
SALES
JOURNAL - includes all goods or products sold, rented
and/or distributed as well as service, repair and installation.
Sales of excise taxes collected separately and submitted
to the government need to be identified in order to be
excluded.
-
CASH DISBURSEMENTS – shows subcontractors, materials
and casual lobor.
-
CERTIFICATES OF INSURANCE – for subcontractors used
during the policy period for construction, erection and/or
structural aleration,showing liability and Workers Compensation
Insurance coverage.
WHEN AND HOW WILL THE AUDIT BE DONE?
We
will collect audit information from you shortly after
your policy expires.
Smaller, less complex policies may only require that
you assemble and send the necessary information to us,
of have the information available when a telephone auditior
calls.
Larger, more complicated policies are handled by a field
auditor who will schedual an appointment with you shortly
after your policy expires.
If you must change or cancel a scheduled appointment,
please advise the auditor as far in advance as you can.
It is best to schedule and complete this audit within 30
days form your policy expiration date.
It is important for the auditor to ask questions about
your operations. If you cannot be present to answer questions,
It is important for someone to be available that is familiar
with the specifics of your entire business operations.
If you direct us to your accountant, we will obtain as
much information as possible from your accountant and contact
you if we have additional questions.
Most
policy audits only take a half hour or less. Audits of
larger policies may take longer. Though
the auditor
will have a number of questions, you won’t have to
be directly involved during the entire audit if adequate
records are available.
HOW CAN YOU SAVE MONEY?
There are several ways you can save on premium dollars
depending on the type of business and coverages you have.
Not all of the following may apply to your particular business.
-
PAYROLL DIVISION – A single employee’s payroll
can be divided except when the employee works in a
clerical of sales position. Poper records must be kept
in dollar
amounts that reflect work actually spent in the above
mentioned classes before a breakdown can be applied. Without
adequate
records, the entire payroll for the employees must
be placed in the highest rated classification.
-
EMPLOYEE TIPS – Tips declared by employees may be
excluded from their gross payroll only if separately identified.
-
CERTIFICATES OF INSURANCE – Have certificates available
for the audit (at your premises or your accountant’s)
to ensure that charges are not made unnecessarily. Certificates
must cover the period when the subcontractor worked for
you (this may require Certificates covering two different
policy terms for the subcontractor in some cases).
-
DRIVERS – (For general liability coverage), employees
with the sole responsibility of driving may often be excluded
from chargeable payroll if their wages are shown separately.
However, employees who perform other duties besides driving
must be placed in the highest rated class describing their
duties.
Your
business is unique. If you have questions about how your
specific circumstances will affect savings, please
contact your insurance agent.
BASIC DEFINITIONS
REMUNERATION – Commonly
called payroll. Includes wages, commissions, bonuses,
overtime pay, pay for holidays, vacations and sickness,
payment for
piece work, value of meals and lodging and other substitutes for money.
OVERTIME – Those
hours worked for which there is an increase in the rate
of pay. Includes:
-
Work in excess of 8 hours per day or 40 hours per week.
-
Work on Saturdays, Sundays or holidays.
-
Work in any day of week in excess of a guaranteed wage
agreement.
Extra
pay for shift differential in not considered overtime.
Ordinarily,
overtime pay is equal to 1 ½ times
the regular hourly rate. For example, a regular pay rate
of $10 per hour at time and a half generates a $15 per
hour overtime rate.
If the extra $5 of pay is shown separately, it is excluded
in total. If total overtime wage is shown in a combined
amount of $15 (regular pay plus increase) and included
in gross payroll, one third ($5) will be deducted from
gross pay.
If the overtime wage is calculated at double time, one
half will be deducted from gross pay.
GROSS
SALES - Gross amount charged by you or others trading
under your name, for all goods or products sold or distributed,
operations performed and rentals. Some deductions from
gross sales include sales or excise tax, returns and allowances
and finance charges for items sold on installment.
SUBCONTRACTORS – The term “Subcontractor” is
often used interchangeably with “Independent contractor”.
We ordinarily apply the definition to subcontractors performing
construction, erection or structural alteration for a general
contractor. Most workers compensation laws hold you responsible
for employees of an uninsured subcontractor. In some states,
they may extend to an uninsured subcontractor without employees
if an employee-employer relationship can be established.
These people will also be charged under a liability police
as though they were your employees if there is no certificate
showing evidence of insurance. Subcontractors can easily
obtain a Certificate of Insurance through their insurance
agent.
COMMONLY ASKED QUESTIONS
Q: Why is an audit necessary?
A: To calculate the exact amount of premium you will be
charged. Actual exposures and operations are determined
by an audit. After they are compared with initial estimates
and later endorsements, a final audit premium is determined.
Q: If overtime is not summarized, will I still get credit?
A: Overtime records must show overtime pay separately
by employee or by classification or it will not be deducted.
Q:
If I don’t have Certificates of
Insurance from subcontractors for the audit, will
I be able to get them?
A: It is in your best interest to request a certificate
from the subcontractor at the time the work is performed
rather than at the time of the audit. You will be charged
for employees of those subcontractors not providing certificates
as though they were your employees.
Q: Several of my employees do more than one type of work.
How should I assign their payrolls?
A: Payrolls may be divided into appropriate classifications,
provided the division is reflected on the original records
in dollar amounts.
Q: Some of my work could be considered clerical and sales.
Should I separate it?
A: The clerical and sales classifications cannot be used
with any other class for division of a single employee’s
payroll.
Q: Is it necessary to provide audit information if my renewal
policy has been cancelled?
A: Yes, policies are issued using estimated payrolls so
the actual payroll needs to be known to determine additional
premium is due the company or a return premium is due
the policyholder.
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