Premium Audits
What is a premium audit and why is it important?
The premium base for worker’s compensation insurance is your business’s payroll. A premium as a certain rate per $100 of payroll for the policy period is defined when the policy is written. At the end of the policy period, an audit is conducted to determine the actual payroll to determine the final earned premium. If the final earned is more than the initial premium you paid, the additional balance must be paid. If the final earned is less, a refund for the overpayment or a credit to any balance owed will be distributed.
Calculating Remuneration
The NCCI Basic Manual provides rules in relation to the remuneration that should be included in determining the total. Premium is computed on the terms of total remuneration paid or payable by the insured for services of individuals who could receive worker’s compensation benefits for work-related injuries as provided for by the policy. Please contact the Premium Audit Department at premiumaudit@lubawc.com for the types of remuneration included in the audited exposure.
Owners and Executive Officers
There are minimum amounts that should be included for executive officers, partners, or sole proprietors, as specified by the NCCI Basic Manual. Executive officers or owners that are covered by the policy are qualified for remuneration and will be included as part of the premium base. Those who qualify may be excluded from coverage; however, the policy must be endorsed with the Exclusion Endorsement.
Subcontractors
A certificate of insurance issued by the subcontractor’s insurer can demonstrate that insurance covers the subcontractor’s statutory workers’ compensation obligation. The certificate of insurance should always contain the coverage for the state, as well as, the location and period for which the subcontractor is working.
If there are no payroll records for the period in which the subcontractor worked, the full subcontract price for the work performed during the policy period will be included in the premium basis. If a definite amount of the subcontract price represents payroll, that amount is included as payroll for the additional premium computation. The amount must be at least half of the subcontract price in contracts for labor and materials and at least 90 percent of the subcontract price in contracts for labor only. If the contract covers mobile equipment with operators, the amount included must be at least 33 1/3 percent of the subcontract price.
How to Prepare for a Premium Audit
An auditor will contact you upon the expiration of your policy period to complete an audit. An audit will require a description of operations, information on executive officers, detailed jobs duties for each employee and contract worker, as well as subcontract labor performed. Make sure to keep copies of certain records including payroll records, gross dollar amounts of overtime paid separated by employee, subcontractor invoices, and certificates of insurance.