—> Alert! – BGES Group offers several programs that can minimize or eliminate annual workers compensation audits. Call Gary Wallach at 914-806-5853 to learn more!
For most business owners, the word audit immediately triggers stress. It sounds time-consuming, intrusive, and expensive. But when your insurance company conducts a premium audit, it’s not just for their benefit—it’s equally important for you.
A premium audit is the process your insurance carrier uses to determine whether the premium you paid during your policy term accurately reflects your actual business activity. When your policy was issued, your carrier based your premium on estimated payroll or sales figures. Now that the policy period has ended, real numbers replace estimates, and your insurer recalculates the premium accordingly.
Handled properly, a premium audit can work in your favor. Handled poorly—or ignored—it can result in unexpected bills, disputes, and even coverage problems. Understanding how audits work and how to prepare is the key to protecting your business.
Why Premium Audits Exist
Insurance premiums are based on exposure. Exposure may include:
- Payroll
- Gross sales
- Use of subcontractors
- Type of work performed
Because these numbers can fluctuate throughout the year, insurers rely on audits to verify what actually happened during the policy period.
Once the audit is complete, your carrier may determine:
- You overpaid and are due a refund, or
- You underpaid and must pay additional premium (often called “back premium”).
Either outcome depends entirely on the accuracy of your records.
Types of Premium Audits
Insurance companies use several different audit methods depending on the size and complexity of your business:
Mail Audit You’ll receive an audit form and instructions by mail. You complete the form and return it with supporting documents.
Phone Audit An independent audit firm will conduct the audit over the phone, asking you to provide financial and payroll data.
Physical Audit An auditor visits your business location—or sometimes your CPA’s office—to review records in person.
Regardless of the method, the audit will usually include review of:
- Payroll journals and ledgers
- Disbursement records
- Tax and Social Security reports
- State unemployment forms
- Subcontractor payments
- Other accounting documentation
This data is used to adjust your premium up or down.
Policies Most Commonly Audited
The two most commonly audited policies are:
General Liability Policies Auditors typically review:
- Gross company sales
- Payroll for certain exposures
- Independent contractor costs (insured and uninsured)
Workers’ Compensation Policies Auditors will look at:
- Actual employee payroll
- Independent contractor costs if no certificate of insurance is provided
Failure to properly document subcontractors can result in those costs being treated as payroll, which can significantly increase your premium.
Be Prepared: The Best Defense Against Problems
Preparation is your greatest ally. Keeping accurate, organized records year-round makes audits far less stressful and reduces the risk of overcharges.
Key records you should maintain include:
- Payroll broken down by employee and job classification
- Departmental payroll summaries
- Sales records
- Certificates of insurance for all subcontractors
- Proof of workers’ compensation and liability coverage for subcontractors
If you can produce these documents quickly and clearly, the audit process becomes straightforward.
How to Prepare Once You Are Notified
Once you receive notice that an audit is scheduled, take the following steps:
- Review Past Audits and Worksheets Look at prior audit billing statements and worksheets to understand what the auditor will be reviewing.
- Select the Right Person to Assist the Auditor Choose someone who understands both your accounting records and the actual work performed by employees and departments.
- Gather All Required Records in Advance Have payroll reports, ledgers, tax filings, and subcontractor certificates ready before the audit begins.
- Verify Subcontractor Coverage Make sure every subcontractor has valid certificates of insurance for both general liability and workers’ compensation.
- Break Down Payroll Properly Your payroll documents should clearly separate wages by class code, department, and employee.
Proper classification can prevent higher-rated work from being applied to lower-risk employees.
The Day of the Audit
On audit day:
- Make all records easily accessible.
- If possible, have the audit conducted at your place of business.
- Ask the auditor to explain anything you don’t understand.
- Request a hard copy of the auditor’s findings.
Remember, auditors are not there to penalize you—they are there to verify numbers. Clear communication helps avoid misunderstandings.
After the Audit: Don’t Rush to Pay
When you receive the audit billing statement:
- Compare it carefully to your original policy estimates.
- Review all changes line by line.
- Look for misclassified payroll or subcontractor costs.
Do not agree to pay any additional premium until you have reviewed the audit with your insurance advisor.
Disputes can often be corrected if addressed promptly. Errors in classification or missing certificates can dramatically change the outcome.
Why Accurate Records Matter
Knowing what to expect and how to prepare is the key to a successful audit. Even if you owe additional premium, the outcome is far better than if you had poor or incomplete records.
By regularly updating the information your insurer requires, you stay ahead of potential problems and can identify changes in your business that may affect your premiums before they become costly surprises.
A premium audit should never be feared—but it should always be respected.
Who We Are: BGES Group
At BGES Group, we specialize in helping contractors and business owners navigate the complexities of commercial insurance, including premium audits.
We don’t just place policies—we act as your advocate before, during, and after the audit process. Our expertise includes:
- General liability and workers’ compensation audits
- Proper employee and subcontractor classification
- Identifying audit errors and disputing incorrect charges
- Advising clients on record-keeping best practices
- Ensuring policy exclusions and classifications truly match your operations
Unlike generalist brokers, we understand contractor liability policies and the exposures that drive premiums. That knowledge can make the difference between overpaying and paying what is truly fair.
Our goal is simple: protect your business, control your costs, and make insurance work for you—not against you.
Contact BGES Group
If you have received a premium audit notice or want help preparing for one, we are here to help.
BGES Group Gary Wallach Commercial Insurance Specialist
📞 Phone: 914-806-5853
📧 Email: bgesgroup@gmail.com
🌐 Website: www.bgesgroup.com
Don’t wait until an audit turns into a surprise bill. Let BGES Group guide you through the process with experience, clarity, and confidence.