PREMIUM AUDIT

A premium audit is the report of findings made by examining a company’s operation, its records and its books of account to determine the level of insurance risk. Typically, the audit takes place at the end of an insurance cycle, or when a policy is terminated.

The audit determines the correct exposure or premium base for workers comp insurance coverage. As company operations, records, or books of account change, the audit enables HEMIC to adjust for those changes. When necessary, adjustments may be made to the premium that was estimated when the policy was first issued.

Mail Audit
Site Audit
Maintaining Records

 

Mail Audit

In many cases, it will be sufficient for HEMIC to conduct a mail audit. In this case, the necessary forms will be mailed to your company with instructions how to complete them.

You will be asked to supply information regarding your payroll, subcontractors, etc. Maintaining the proper records will help you easily complete the mail audit.

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Site Audit

If HEMIC deems it necessary, and if the conditions of your policy require it, a premium auditor will contact you to make an appointment for a physical audit. The auditor will examine and audit records needed to determine the correct exposure, or risk.

In most cases, the Premium Auditor will be able to obtain the audit data from the following sources: Journals, Ledgers, Tax Reports, Individual Earnings Cards, Payroll records or Ownership Tax Receipts, and Cash Disbursements.

In the course of the audit, the Auditor may ask some questions about your records, claims filed, and personally observe the various operations of your business.

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Maintaining Records

Often there are allowable credits according to insurance manual classification and rating rules. The auditor will be able to give you the credits to which you are entitled, if your records provide the necessary details.

Workers’ comp insurance premiums are based on payroll, which is defined as total remuneration for services performed by an employee. By maintaining your payroll records in accordance with the following guidelines, you might reduce your insurance costs.

  • Overtime
    In most states, the amount paid in excess of straight time pay can be deducted if the excess can be verified in your records. You must maintain your records to show overtime pay separately by employee and in summary by classification of work.
  • Division of Payroll
    The division of an individual employee's payroll among more than one classification is allowed, provided proper payroll records are maintained. Your records must show the number of hours and amount of payroll for each type of work. If you do not keep such a breakdown, the full salary must be charged to the highest rate classification to which the employee is exposed. An estimated percentage calculation is NOT permitted.
    Exception: For classifications 8742, 8748, 8810, and 8871, a payroll division is not available with any other classification even if the insured maintains proper payroll breakdowns in their records.
  • Subcontractors
    Under most workers' compensation laws, you will be held responsible when an uninsured subcontractors' employee is injured. This may extend as well to a subcontractor without employees whose duties closely resemble those of an employee. To protect yourself, be sure to secure a Certificate of Insurance from each subcontractor you use. If such evidence of insurance is not available at the time of audit, the subcontractor's payroll must be added to your payroll.

    For General Liability, it is also necessary for your contractors to secure a Certificate of Insurance from each subcontractor they hire. Without a Certificate showing limits of liability equal or great or than yours, it will be necessary to classify these subcontractors as employees.
  • Automated Records
    If your records are automated or if you plan to automate them in the near future, you can obtain maximum benefits by setting up your records to include insurance requirements. The Premium Auditor will be pleased to assist you in setting up your records.
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