As a small business owner, you have many duties within your organization. You may spend your time operating an excavator, reviewing contracts, tracking down new business opportunities, and even handling human resources in the office. In many cases, the demands and pressures of owning a small business leave some business management aspects neglected. Often times, the neglect comes in the area of your business insurance.
One important part of your business insurance that should not be procrastinated on, or neglected entirely, is your General Liability and/or Workers Compensation audits. Failure to comply with your audits can be costly to your business’s bottom line. Most insurance companies will estimate your sales or payroll in the event you do not respond to them. You can bet that those estimations will typically be on the high side, resulting in additional premium dollars owed by you.
Now is a good time to start preparing for that dreaded insurance audit. Whether it is your accountant or you as an owner that gets stuck with the task of preparing for the audit, there are some helpful tips and rules you should keep in mind:
- Know which employees are placed into each class code, and keep the payrolls separate for each.
A common rule that most small businesses encounter, and are not aware of, is the circumstance of an employee splitting their duties between a high risk job such as a Roofer, and low risk job like Clerical/Office work. In some cases, the payroll cannot be split out between the two codes. Instead, 100% of that employee’s payroll will be rated in the higher class (Roofing). There are other situations where payroll can be split out, so it is important that you track all payroll based on each employee and the job being performed.
- Collect insurance certificates from each of the subcontractors you use.
Any time you use a sub-contractor to perform work on your behalf, you should be collecting copies of their insurance certificates (showing both General Liability & Workers Compensation coverage). Also, keep track of the payments made to those subcontractors. Failure to have these certificates at the time of the audit will more than likely result in you paying Workers Compensation premium or General Liability premium based on an amount those subcontractors were paid.
- Check the payroll and sales estimates being used on your current policy to make sure you are still on track.
Try to avoid that large audit bill at the end of the policy term by keeping track of your payrolls throughout the year. The estimates you give your agent at the beginning of the policy term can be adjusted at any time. If you know you are on track to exceed your sales or payroll expectations, get on top of it early and make the adjustment now. You will see your remaining premium installments increase, but it will help reduce the amount of that audit bill, minimizing the effect on your business’ cash flow.
More Information:
If you have further questions regarding insurance audits, please contact your trusted advisors at Hausmann-Johnson Insurance.
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