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What are the Key documents needed for an Insurance Audit?

Insurance audits are routine processes conducted by insurance companies to ensure that the premiums charged accurately reflect the exposure.   The insurance company will verify your financials to determine how the actual income and compensation differ from the estimates reported when calculating your premium in the beginning of the policy period.  

  • If it is less than estimated at your last renewal- You receive a REFUND
  • If it is more than estimated at last renewal- You have to PAY the additional premium based on the accurate compensation amount.

During these audits, businesses are asked to provide various documents that verify their payroll and other relevant information. 

Most frequently requested documents for an Insurance Audit

(GL=General Liability  –   WC=Workers Compensation)

  1. Payroll Records:
    • GL & WC: Detailed payroll journals, including gross wages, overtime, and bonuses, to verify reported figures.  
    • WC:
      • Employee Rosters and Job Descriptions: Helps classify employees correctly, as workers’ compensation rates vary by job type.
        • Best Practice: To classify different job types in your payroll records for easy organization (only necessary when job types hold different class codes for insurance).
  2. Tax Forms:
    • GL & WC: 
      • 941 Forms: Quarterly federal tax returns.
      • 940 Forms: Annual federal unemployment tax returns.
      • W-2 Forms: Annual wage and tax statements.
      • 1099 Forms: Issued to independent contractors.
    • GL:
      • State Sales Tax Returns: Reflect taxable sales figures.
      • Income Tax Returns: Verify overall financial health and revenue.
  3. Certificates of Insurance for Subcontractors:
    • WC: A Certificate of Workers Comp Insurance proves subcontractors have their own workers’ compensation coverage
    • GL: A Certificate of Liability Insurance proves subcontractors have their own liability coverage.
  4. General Ledger and Financial Statements: May include profit and loss statements, balance sheets, and cash flow statements
    • GL & WC: Provides a comprehensive view of financial transactions and cross-reference payroll data for Workers Comp and Gross Sales for Liability.
  5. Possible: Subcontractor Agreements:
    • WC: Outlines terms of work, helping auditors determine if subcontractors are independent contractors or employees.

Maintaining detailed and accurate records can streamline the audit process, ensure compliance, and avoid potential adjustments to their premiums. Understanding and providing the most frequently requested documents, such as payroll records, tax forms, employee rosters, certificates of insurance, general ledgers, time cards, and subcontractor agreements, is crucial for a smooth and successful audit.

Workers Compensation Payroll Billing Program 

One effective strategy to manage uncertainty with your Workers Comp premium is to participate in a Payroll Billing program, also known as Pay As You Go. This program aligns your payroll company with your insurance carrier to precisely monitor payroll as it is reported. Ideally, this coordination ensures a minimal discrepancy between the Workers Comp premiums you pay and the final premium determined by an audit.

However, even with enrollment in a pay as you go program, a Workers Compensation Audit remains necessary, though it typically becomes simpler to conduct.

Ask your HTA Advisor if your Workers Comp Company and your Payroll Company participate in this service.

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