PREMIUM AUDIT

According to your insurance policy, we have up to three years after the expiration date on the policy in order to conduct an audit. The vast majority of audits are completed a few months after the expiration date.

Keep detailed records. It will be to your advantage to:

• Show payroll with summaries by employee, by department, and by class code.

• Provide clear information on the type of work or job duties each employee completed during the policy term.

• Keep up-to-date certificates of insurance for all subcontractors used. (This applies to Contractors.)

• Show sales information type by week or month.

• Provide receipts and costs by type and by source.

The rules vary by state. Each state decides which rules to apply by statute. These rules are found in the basic manual for each state. The interpretation of rules are from the Premium Audit Advisory Service (PAAS) which is an independent industry organization dedicated to the fair and consistent treatment of audit issues. There are also some Acuity company procedures that are based on common practices found throughout the property and casualty insurance industry.

In your Workers’ Compensation policy, owners, officers, partners, and members can elect to be covered or elect not to be covered depending on the rules that vary by state. This must be done before the policy is issued. Your agent can show you how to do this. You do not have this choice under your General Liability policy.

If the owner, partner, officer or member is covered under the policy, those wages will be included at either a fixed amount or a variable amount subject to maximums and minimums depending on your state rules for your business type.

According to state rules we are required to show an annualized payroll instead of actual payrolls. There also is a “short rate” cancellation charge. Individual rates are adjusted on the statement to make the final premium appropriate to your reported payroll.

Audit payroll is called remuneration in the basic manual rules. Remuneration means money or substitutes for money.

Remuneration can be defined as “the total remuneration for services performed by an employee.” This may be money and substitutes for money and includes:

• Wages and Salaries (including retroactive wages)

• Bonuses and Stocks

• Commissions and Draws

• Incentive Pay and Profit Sharing

• Payment for Piece Work

• Premium Overtime Pay

• Pay for Holiday, Vacation and Sickness (except South Dakota)

• Meals Received as Pay

• Lodging received by an employee as part of their pay

• Store certificates or Merchandise

• Payments for salary reduction, employee savings plans, retirement or cafeteria plans (IRC 125) that are made through employee-authorized salary reduction from the employee's gross pay

• Payment by an employer of amounts that have been withheld from employees to meet statutory obligations for insurance or pension plans such as the Federal Social Security Act or Medicare

• Tips or other gratuities received by employees

• Payments by an employer to group insurance or group pension plans for employees, other than those covered by Rule 2-B-1-f and Rule 2-B-1-m

• Payments by an employer into third-party trusts for the Davis-Bacon Act or a similar prevailing wage law provided the pension trust is qualified under IRC Sections 401(a) and 501(a)

• The value of special rewards for individual invention or discovery

• Dismissal or severance payments except for time worked or vacation accrued

• Payments for active military duty

• Employee discounts on goods purchased from the employee's employer

• Expense reimbursements to employees to the extent that an employer's records confirm that the expense was incurred as a valid business expense

• Supper money for late work

• Work uniform allowances

• Employer-provided perks

• Employer contributions to employee benefit plans

When preparing for your audit, refer to these helpful tips:

• If your audit is based on payroll, separate any overtime (regular pay plus overtime pay) you paid to your employees. Summarize this overtime by classification. We will exclude the excess payroll in our calculations.

• If you are in a construction business, make sure you have current certificates of insurance for each of the subcontractors that you used during the policy period. Also make sure that the certificate of insurance is for the same type of insurance coverage being audited. For example, if we audit your Workers’ Compensation policy, be sure the certificate of insurance indicates Workers’ Compensation coverage.

• Make sure that the corporate officer pay or owner/partner pay is available separately. There are different rules that apply.

• If you have any questions about the upcoming audit, please call the auditor or your agent before the audit appointment.

• If you have any questions about the audit process, please ask the auditor. Many problems or disputes can be best handled during the audit when both parties can talk directly.