Helpful Tips to Prepare for Your Workers Compensation Premium Audit
Please review these tips to prepare for your Workers Compensation Premium Audit. An accurate audit depends on having your records prepared for review.
What documents (or records) will I need for a premium audit?
You will be informed of specific documents needed prior to your premium audit, but in general you will need to provide information such as: payroll reports, check registers, cash disbursements journal (including subcontractors, casual labor and material costs) and Certificates of Insurance. You will also be asked to provide tax documents that are used to verify figures from the primary source.
TIP: Maintain up-to-date records and save in a paper or electronic folder. Visit the Required Documents section to see examples of documents and verification records needed, which vary based upon your type of policy.
Why may I be asked to provide more than one document with the same information?
The auditor must review information documented in payroll reports (primary source) and validate these against numbers recorded in tax forms (verification source). The auditor may also review other data sources such as your checkbook, cash receipts, general ledger, etc. to determine other payments that are not reflected in payroll records. These documents are only used for the purpose of completing the premium audit.
TIP: The source document should match as closely to your policy period as possible. For payroll reports, you can round to the first of the month (it is acceptable to deviate from the policy period by 30 days). For example, if your policy period is 6/15 - 6/15 you can provide payroll for 7/1 to 7/1 or 6/1 to 6/1.
TIP: For verification documents, if your policy period falls in the middle of the month, simply provide the most recent four filed quarterly (or annual) tax reports that most closely aligns with your policy period.
Will I need to provide my tax records?
Yes, we will need to review your tax records, such as Federal 941 form, State Unemployment Wage reports (SUTA), 1099's, 1040c (Schedule C), 1120, 1065, etc. Your records are confidential and used only for the purpose of completing the premium audit. Visit the Required Documents section to see examples of documents and records needed which vary based upon your type of policy.
TIP: Keep copies of filed tax forms applicable during your Workers Compensation policy term. If your policy period falls in the middle of the month, simply provide the most recent four filed quarterly (or annual) tax reports that most closely aligns with your policy period.
What if I don't have employees and/or don't file a 941 or State Unemployment (SUTA) tax forms?
The following verification records will be required:
- For a Sole Proprietor, the Profit or Loss (Form 1040) Schedule C pages 1 and 2
- For a Partnership, U.S. Partnership Return of Income (Form 1065) Page 1 and 1125-A
- For a Corporation, U.S. Corporation Income Tax Return (Form 1120) Page 1 and 1125-A
What if my tax records don't line up with my policy period?
If your quarterly tax reports don't line up with your policy term, provide your last four filed quarterly reports or last annual tax report. We will be able to reconcile to our satisfaction using the last four filed quarterly reports.
TIP: Keep copies of filed tax forms applicable during your policy term.
What should I do if I add a new entity, start a new operation or start working in a new state?
Advise your Agent or Producer. Your policy may need to be endorsed to reflect the new exposures. For assigned risk coverage, some states may not be added to your policy. Contact your Agent or Producer or company representative for additional information.
TIP: Inform the Auditor of changes to your operations. For assigned risk coverage, inform your Producer or company representative.
Why do Assigned Risk/Residual Market Workers Compensation policies require a picture for a virtual audit?
If you have an assigned risk/residual market workers compensation policy and are having your premium audit conducted virtually (e.g., online and over the phone), NCCI recommends that Travelers obtain a picture of your operations. A picture representing your operations or of your job site if construction/special trades, can be uploaded to the Travelers Premium Audit secure website. In either case, if you maintain an office staff, a picture of the area in which they work is also requested to assist with classifying these employees.
Owners and Officers
Can corporate officers be excluded from coverage?
Workers Compensation laws in some states may permit officers to be excluded from Workers Compensation coverage. Contact your Agent or Producer for state-specific guidelines.
TIP: If exclusion is permissible in your state, contact your Agent or Producer for required exclusion forms immediately, and advise us in writing of any new officers during the policy term.
Are sole proprietors, LLC members and partners covered under their workers compensation policy?
Your policy may be endorsed to include or exclude sole proprietors, LLC members and partners based upon state rules.
TIP: Please contact your Agent or Producer for state-specific guidelines.
What happens if our business is currently a partnership and we decide to incorporate during the policy term (change in legal entity or ownership)?
Changing your legal entity status during the policy term may impact your coverage and/or premium under the Workers Compensation Law in your state.
TIP: Advise your Agent or Producer or our company representative immediately if you change your legal entity status, or if the ownership of your business changes.
Independent / Subcontracted Work (non-employees)
Who is an Independent Contractor?
Generally speaking, an Independent Contractor is someone who makes a business of providing a specific service for a pre-determined price, to several different customers, and controls the manner in which the work is completed. Since definitions and requirements may vary by state, please contact your Agent or Producer with questions concerning your particular situation. Additional tests of independent status may apply.
TIP: Maintain copies of contracts and invoices showing a breakdown of labor and materials, business cards, and Certificates of Workers Compensation and General Liability Insurance (COIs) covering the time the contractors perform work for you.
Will I be charged premium for Independent/Sub-contracted work?
You may be responsible for employees of uninsured independent contractors/subcontractors. Without a valid certificate of Workers Compensation Insurance we may charge premium for work performed by an independent contractor/subcontractor. Since definitions and requirements may vary by state, please contact your Agent or Producer with questions concerning your particular situation. Additional tests of independent status may apply.
TIP: Obtain and maintain valid Certificates of Insurance (COI) showing Workers Compensation coverage for all independent/subcontracted work during the policy term. Subcontractors can also request a copy of their COI from their insurance agent.
What is a valid Certificate of Insurance (COI)?
A valid Certificate of Insurance identifies the existence of a Workers Compensation and/or General Liability policy, the insurance carrier providing the coverage, policy number and policy term (dates of coverage), who is insured (the independent contractor/ subcontractor) and the certificate holder (your company).
TIP: Make sure the independent contractor’s/subcontractor’s policy is in effect during the time the work was performed for you. Obtain proof of coverage for a previous or subsequent term as needed to cover the entire time period the contractor/subcontractor worked for you.
What if my payroll records don't line up with my policy period?
If your payroll report doesn't match your policy term, you can round the payroll report to the first of the month. For example, if your policy period is 6/15 - 6/15 you can provide payroll for 7/1 to 6/30 or 6/1 to 5/31.
TIP: It is acceptable to deviate payroll from the policy period by 30 days.
Are holidays, vacation, sick time wages, or housing allowances included in my Workers Compensation premium calculation?
Yes. The rate you pay already considers the fact that there may be holidays, vacation, sick time, etc., for which the employee is eligible. However, severance and third-party disability payments may be excluded.
TIP: Maintain separate records for severance and third-party disability payments.
Are tips included in my Payroll?
No, provided your records separate tips from regular wages. Note: Not applicable in the state of Montana for workers compensation.
TIP: For each employee earning tips, maintain records of tips and wages paid.
What payroll information is needed for my premium audit?
For an in-person audit please have the following information available (it is not required to be printed). For an online audit you can upload this information on the secure website which accepts a wide variety of file formats (i.e., Excel, PDF, CSV, JPEG, etc.)
Your payroll report should include all employees for the audit time period including employees that may have been terminated:
- Employee Name
- Description of Work Performed (which may be different from their Job Title)
- State of Employment
- Total Gross Wages per Employee
- If your company pays any of the following wages please separate them in the report:
- Total Overtime Wages and Double Time Wages
- Total Severance
- Total Tips
- Total Section 125 Contributions (California Only)
- If your company pays any of the following wages please separate them in the report:
If your business hired any contractors or subcontractors during the policy term please provide a report that details the payments, and include the following:
- Contract laborer/subcontractor name
- Description of work performed
- State in which work was performed
- Date work started/ended within the policy term
- Total amount paid
- Cost of materials supplied
- Did the contractor/subcontractor have employees or hired help?
- Certificates of Insurance that cover the dates worked (if applicable)
Please note: Your auditor may ask for additional items, as requirements vary by state. Contact your Agent or Producer with questions concerning your particular situation.
Are overtime payments excluded from Payroll?
Yes, if separate records are kept, overtime can be excluded from your premium using the following calculation: if OT paid at time and a half, 1/3 of the overtime can be excluded. If overtime is paid at double time, 1/2 of the overtime can be excluded. Note: Not applicable in the states of Delaware and Pennsylvania for Workers Compensation.
TIP: For each employee paid overtime maintain separate records of regular wages and overtime payments.
When can an employee's payroll be split among more than one classification?
Industry regulations require that employee payroll is assigned to the basic classification that best describes the business of the employer. It is the overall business that is classified, not each employee or duty. However, the payroll for an employee may be split if certain classifications can be applied to your business (based on the Classification Rules), and you maintain a payroll breakdown for the employee by job classification. Certain job classifications cannot be split for individual employees (examples: 8810-Clerical, 8742-Salespersons).
If the conditions are met, maintain records that reflect individual employees’ actual time working within each job classification. Remember, estimated or percentage allocation of payroll is not permitted. If records don’t show the actual payroll applicable to each classification, the entire payroll of the individual employee must be assigned to the highest rated classification that represents any part of his/her work.
What should I do if there are large changes (increases or decreases) in staffing?
Notify your Agent, Producer or company representative as your policy my need to be endorsed to reflect changes in exposures.
TIP: Inform the Auditor of changes to your staffing. For assigned risk coverage, inform your Producer or company representative.