Preparing for an Insurance Audit


No business owner likes to hear the A-word — “audit” — but if you’re prepared for it, it’s nothing to worry about.

An auditable insurance policy is one that is rated based on an exposure that may change over time. As your business changes over the course of the year, you may have more or less exposure than you anticipated. The most common auditable exposure is payroll, which is used as a rating basis for many general liability and all workers’ compensation policies.

After the end of the policy period, you may get a call or a letter from an insurance auditor requesting to see your records. The auditor may work for the insurance company you’re insured with, or may be a third party contractor that they’ve hired. The auditor’s job is to make sure that the insurer has charged you the premium that corresponds with the rating factor they’re looking at.

To determine this, they’re going to look at:

  • Your IRS Form 941 payroll tax filings, showing all payments to employees. This will tell them your total payroll.
  • Your records regarding the type of work performed. Different types of work are charged different rates because the kinds and frequencies of injuries are different. A receptionist is much less likely to fall from a two-story building than a roofer, for instance.
  • Your overtime records. Wages paid at the overtime rate are charged at “straight time” for workers’ compensation rating purposes.
  • Payments to subcontractors, and certificates of insurance. Any payments to subcontractors who haven’t proved to you that they have their own workers’ compensation insurance by providing a certificate is going to be treated as if they were payroll. This may not seem fair, but Missouri courts have held that employees of subcontractors can be covered under the workers’ compensation insurance of a general contractor in many cases. For uninsured subcontractors, track payments for materials separately from payments for labor, if possible. You are only rated on the labor cost.

The best defense against an audit bill is preparation. By keeping appropriate records, and planning for any additional expense if you know it’s coming, you can avoid unpleasant surprises.

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200 Mississippi Ave • Crystal City, MO 63019 • Phone: (636) 931-1200 • Fax: (636) 931-1201

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