Preparation Tips for Your General Liability Premium Audit

You will be informed of specific documents needed prior to the audit, but in general you will need to provide information such as:  payroll reports, check registers, cash disbursements journal (including subcontractors, casual labor and material costs) and Certificates of Insurance. You will also be asked to provide tax documents that are used to verify the primary source.

TIP: Maintain up-to-date records and save in a paper or electronic audit-designated folder. Visit the required documents section to see examples of documents and verification records needed, which vary based on your type of policy. 

A Premium Audit representative must review information documented in payroll reports (primary source) and verify these against numbers recorded in tax forms (verification source). You may be asked to provide other information such as payroll journals, checks or disbursement ledger, etc., to determine other payments that are not reflected in payroll records. These documents are only used for the purpose of completing the premium audit.

TIP: The source document should match as closely to your policy period as possible. For payroll reports, you can round to the first of the month (it is acceptable to deviate from the policy period by 30 days). For example, if your policy period is 6/15 to 6/15, you can provide payroll for 7/1 to 7/1 or 6/1 to 6/1.

TIP: For verification documents, if your policy period falls in the middle of the month, simply provide the most recent four filed quarterly (or annual) tax reports that most closely align with your policy period. 

Yes, we will need to review your tax records, such as Federal 941 form, State Unemployment Wage reports, 1099s, 1040c (Schedule C), 1120, 1065, etc. Your records are confidential and used only for the purpose of completing the premium audit. Visit the required documents section to see examples of documents and records needed, which vary based on your type of policy. 

TIP: Keep copies of filed tax forms applicable during your policy term. If your policy period falls in the middle of the month, simply provide the most recent four filed quarterly (or annual) tax reports that most closely align with your policy period. 

The following verification records will be required: 

If your quarterly tax reports don't line up with your policy term, provide your last four filed quarterly reports or last annual tax report. We will be able to reconcile to our satisfaction using the last four filed quarterly reports.

TIP: Keep copies of filed tax forms applicable during your policy term. 

Advise your agent or producer. Your policy may need to be endorsed to reflect the new exposures. For assigned risk coverage, some states may not be added to your policy. Contact your agent or producer or company representative for additional information.

TIP: Inform the auditor of changes to your operations. For assigned risk coverage, inform your producer or company representative. 

Workers compensation laws in some states may permit officers to elect exclusion from workers compensation coverage. Contact your agent or producer for state-specific guidelines.

TIP: If exclusion is permissible in your state, contact your agent or producer for required exclusion forms immediately, and advise us in writing of any new officers during the policy term. 

Rules vary by state. Contact your agent or producer for state-specific guidelines.

TIP: Your policy may be endorsed to include or exclude sole proprietors, LLC members and partners based on state rules. 

Changing your legal entity status during the policy term may impact your coverage and/or premium under the Workers Compensation Law in your state.

TIP: Advise your agent or producer or our company representative immediately if you change your legal entity status, or if the ownership of your business changes. 

Generally speaking, an independent contractor is someone who makes a business of providing a specific service for a predetermined price to several different customers and controls the manner in which the work is completed. Since definitions and requirements may vary by state, contact your agent or producer with questions concerning your particular situation. Additional tests of independent status may apply.

TIP: Maintain copies of contracts and invoices showing a breakdown of labor and materials, business cards, and Certificates of Workers Compensation and General Liability Insurance covering the time the contractors perform work for you. 

You may be responsible for employees of uninsured independent contractors/subcontractors. Without valid Certificate of Workers Compensation Insurance we may charge a premium for work performed by an independent contractor/subcontractor. Since definitions and requirements may vary by state, contact your agent or producer with questions concerning your particular situation. Additional tests of independent status may apply.  

TIP: Obtain and maintain valid Certificates of Insurance (COI) showing workers compensation coverage for all independent/subcontracted work during the policy term. Subcontractors can also obtain a copy of their COI from their insurance agent. 

A valid Certificate of Insurance identifies the existence of a workers compensation and/or general liability policy, the insurance carrier providing the coverage, policy number and policy term (dates of coverage), who is insured (the independent contractor/subcontractor) and the certificate holder (your company).

TIP: Make sure the independent contractor’s/subcontractor’s policy is in effect during the time the work was performed for you. Obtain proof of coverage for a previous or subsequent term as needed to cover the entire time period the contractor/subcontractor worked for you. 

If your payroll report doesn't match your policy term, you can round the payroll report to the first of the month. For example, if your policy period is 6/15 to 6/15, you can provide payroll for 7/1 to 6/30 or 6/1 to 5/31.

TIP: It is acceptable to deviate payroll from the policy period by 30 days. 

Yes. The rate you pay already considers the fact that there may be holidays, vacation, sick time, etc., for which the employee is eligible. However, severance and third-party disability payments may be excluded.

TIP: Maintain separate records for severance and third-party disability payments. 

No, provided your records separate tips from regular wages. Note: Not applicable in the state of Montana for workers compensation. 

TIP: For each employee earning tips, maintain records of tips and wages paid. 

For an in-person audit, have the following information available (it is not required to be printed). For an online audit you can upload this information on the secure website, which accepts a wide variety of file formats (Excel, PDF, CSV, JPEG, etc.). 

Your payroll report should include all employees for the audit time period, including employees that may have been terminated: 

Other payments 

If your business hired any contractors or subcontractors during the policy term, provide a report that details the payments and include the following:  

Note: Your auditor may ask for additional items, as requirements vary by state. Contact your agent or producer with questions concerning your particular situation. 

Yes, if separate records are kept, overtime can be excluded from your premium using the following calculation:  

TIP: For each employee paid overtime, maintain separate records of regular wages and overtime payments. 

Industry regulations require that employee payroll is assigned to the basic classification that best describes the business of the employer. It is the overall business that is classified, not each employee or duty. However, the payroll for an employee may be split if certain classifications can be applied to your business (based on the Classification Rules) and you maintain a payroll breakdown for the employee by job classification. Certain job classifications cannot be split for individual employees (examples: 8810-Clerical, 8742-Salespersons).

TIP: If the conditions are met, maintain records that reflect individual employees’ actual time working within each job classification. (Remember, estimated or percentage allocation of payroll is not permitted.) If records don’t show the actual payroll applicable to each classification, the entire payroll of the individual employee must be assigned to the highest-rated classification that represents any part of his/her work. 

Notify your agent, producer or company representative as your policy may need to be endorsed to reflect changes in exposures.

TIP: Inform the auditor of changes to your staffing. For assigned risk coverage, inform your producer or company representative.