The questions and answers below are some commonly asked questions. If you have a question not listed here, feel free to email us and we\'ll be happy to reply. We may even add it to the FAQ page!
Once a year insurance companies review commercial casualty insurance policy exposures to make sure they are accurate.
Costs for labor are almost always needed - Payroll records and costs of subcontractors are typical.
Payroll details are very important and can have a big effect on final premium - things like overtime, what jobs employees were doing, what states people worked in are very important.
There is also an extensive list of inclusions and exclusions published by the NCCI that define exactly how to measure workers compensation exposures.
1-One should always send copies of the state unemployment reports filed each quarter. These forms have all employee details needed and are a convenient way to send the information to the insurance company.
2-Payroll details for certain employees is essential to accurately calculate the final policy actual amounts.
There is a classification of the policy that describes the business which is known as the governing classification and most employees are grouped into this classification.Certain employees such as office, salespeople, and drivers have special classifications called Standard Exceptions that must be separated from the governing classification employees and providing the payroll details for these employees allows the insurance company to separate employees into their proper classifications.
Subtracting the Standard exception employees payroll from the gross payroll leaves the payroll for all the Governing classification employees. This same process can be used for overtime and other adjustments.
Companies are required by the state to prove to the government authorities that they have consistent procedures in place to measure how premiums are calculated and ensure all policyholders are treated fairly.
It could potentially be a crime to report inaccurate information- see this interesting article from the Insurance Journal www.insurancejournal.com/news/east/2004/03/08/39897.html
The first and most important rule in insurance is be fair to all policyholders - to not discriminate.
Companies must make sure all policyholders have their exposures measured in the same way and accurately so no one pays more than is fair.
When you wrote your policy you needed coverage from the first day of operations so that is when your policy began.
You can change these dates if desired by working with your agent.Your actual information is entered into the insurance company computers and replaces estimated information used to issue your policy.
This information is used for the expired policies and often for the current active policies as well. Information from the audit is used to calculate accurate premiums based on real numbers rather than estimates. The information is also reported to rating bureaus and is combined with other companies\' data from your industry to calculate the proper rates and experience modification figures.
The insurance company will contact the policyholder, stating dates of coverage and information that needs to be provided.
The policyholder must then assemble the records, do the analysis, provide to the insurance company, and be available to answer any questions that may arise.
Some companies may send an auditor to see you, which requires you and your records be available during the auditor\'s visit.
Yes you can. In fact many times the insurance company will ask you to prepare and send the information to them.
Inclusions and exclusions are defined by the National Council on Compensation Insurance, which also administers the other rules and regulations for workers compensation insurance. Commonly excluded items include overtime, severance pay, and 3rd party payments including tips.
Note - Payroll means remuneration.
Types of accounting information you will possibly need for your audit;
Payroll information will be needed for each employee, with separate totals for each different state the employee worked in. If an employee does more than one type of job and you keep records of amounts paid for each type of work you should report the employees payroll in that manner. If you are allowed to split the employee’s wages into different workers compensation classes the audit department will make sure the payrolls are allocated correctly. There are also adjustments allowed for overtime paid, tips documented for restaurant employees, and certain imputed income amounts
Officer and owner information for the business is very important. You should clearly indicate the name, title, earnings if a corporation, and type of work the officer does. Be sure and list the actual tasks the owner does rather than just a job title.
Unemployment reports you file each quarter are used to reconcile the gross payrolls reported. You will need the reports that were filed during the quarters your policy was in force so that you can record the total gross payrolls reported and compare these to the total earnings from the payroll system. The 2 numbers should match after quarterly gross amounts are adjusted for any time difference between your policy period and the calendar quarters used. Adjustments for section 125 amounts if not included in the unemployment gross reported are important since section 125 payments and 401K payments must be included for insurance audits, but are not always included for unemployment reporting depending on what state you are doing filings in.
Adjustments are amounts that will be deducted from payroll before calculating the final premium. Special types of earnings include overtime, severance paid, auto allowances paid, 3rd party sick pay, and IRS imputed income amounts such as personal use of company car. You should report these and the audit department will know how to treat the deductions. In addition in California Section 125 and 129 amounts deducted are excluded from payroll, in all other states these amounts are included.
Subcontractor costs and Cash workers are the total amounts paid to people who did work for your customers. These amounts are listed along with the type of work the subcontractor did and information from the certificate of insurance. The spreadsheet download is a great format for listing these subcontractors. Make sure you get certificates of insurance for all subcontractors, since they will be included as employees if they cannot provide proof of insurance. All subcontractors who are in business for themselves are potential employers and should have workers compensation policies in force. If they have no employees these subcontractors receive refunds of most of the premium paid for those workers compensation policies so there is no reason to be in business without a workers compensation policy! General liability insurance is also essential for a true business to operate, and a subcontractor who works for you without being properly insured will be included on your audit as an employee.
Sales information is used for general liability polices for retail and manufacturing businesses. It is often easier to include an income statement than to list sales separately especially if you have several class codes on your policy. If your gross sales include sales tax be sure to list the tax also, because taxes collected and remitted to the government are not included for insurance calculations. Returned merchandise is also not included, however discounts are included in the calculated premium.
Description of Operations that is accurate for your business is very helpful for underwriting and helps ensure your premiums are accurate. If you include the type of business, retail or wholesale, tools and equipment used and business processes the underwriter can get a better idea about your specific company.
That\'s it! That is all that is needed to complete the audit process every year, and if you ever need help please feel free to call anytime.
An important part of the audit process is to verify that the wages from the payroll system agree to the wages reported for the quarterly tax filings. This ensures the proper amounts are picked up for the audit.
You will need the quarterly reports that were filed during the quarters your policy was in force so that you can record the total gross payrolls reported and compare these to the total earnings from the payroll system.
Adjustments for 401(K) and Section 125 plans must be included in the gross wages for insurance audits. These adjustments, but are not always included for unemployment reporting depending on what state you are doing filings in. Section 125 plan is a benefit plan that allows employees to select from a pool of choices, such as retirement contributions, vacation days, and health insurance and pay with pretax dollars
Medicare Wages + Pretax Deductions = Total Gross Wages.
Employee Payroll information is needed for each employee, with separate totals for each different state the employee worked in and each different type work that has a unique workers compensation classification code.
Officer and Owner payroll information is needed separately from the others employees of the business since Officers and Owners are treated differently in each of the 50 states and for different types of insurance policies.
Temporary Agencies provide workers to your company on an interim basis and employees of these temporary agencies must be insured by the agency that provided them.
Cash or Casual Laborers payment information is needed because cash workers are considered an employee for workers compensation and are included in coverage from your insurance policy. These laborers are paid cash wages but no FICA or tax withholding is reported. List the same type of information as you did for the full-time and part-time employees, so the auditor will know how to include that worker for the audit.
Adjustments are used to add and subtract from the gross payroll for employees. Remembering that each state has it\'s own rules for premium development, the auditor must be familiar with what states every employee works in and what rules apply for each state during the policy period.
Insurance audits always start with total earnings and then make adjustments as needed to come to the correct final exposure for each state, so adjustments are very important to get correct. The current rules for developing taxable total earnings for employees normally include virtually all payrolls and substitutes for payroll for employees so the adjustment rules for deductions in each state are the most common adjustments done.
Remember that normally total earnings = Medicare wages + Section 129 deductions + Section 125 deductions, so using wages that agree with this formula will normally produce the correct total earnings for the policy period.
The most common adjustments are listed below: