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Business Protection Bulletin

Audits: make it easy on yourself

By July 1, 2014No Comments

Dread insurance audits? Maybe they stand out because the audit period is inconvenient.

Let’s take a look at payroll oriented audits like workers’ compensation.

The easiest audit will cover a period defined by four quarterly employee tax filings, a calendar quarter expiration date. Why? Because you must internally audit these periods already.

The second suggestion is a financial quarter. If for some compelling reason your financial year is not a calendar quarter, chose your financial year or quarter for these audits for the same reason as above.
Separate overtime payroll. Workers’ compensation premium is based on straight time payroll. Overtime earnings are discounted, thus premiums are reduced.

Keep Certificates of Insurance (COI) on all your subcontractors. Technically, even a clerical operation must request a COI for their air conditioning repairman to avoid potential workers’ compensation exposure.

Keep a record of any subcontractor payments made since, even if a COI is not available, the auditor will discount the gross payment and reduce the premium charged. And keep a thorough record of the scope of work performed – there are half a dozen carpentry class codes – so you get charged the correct premium.

General liability insurance uses many “exposure units”. An exposure unit is a statistical devise used to measure average risk to a given type of operation. Some risks are better measured against sales, some by payroll – like workers’ compensation.

Some policies allow square footage as an exposure unit. Of course, this unit is unlikely to change or vary as often as sales or payroll. Ask your agent to shop exposure units that decrease the effects of audits for your company.

Audits assure the insurance does not over or under charge for the risk that your company represents. Sometimes, you’ll receive money back if you over-estimated your exposure units. Cooperate with your auditor, but make it easier on yourself but choosing the right policy period, keeping the correct records, and choosing a compatible exposure unit.