What Every Insurance Agent Should Know About Audits

August 23, 2022

By: 

Rebecca Batisto
What Every Insurance Agent  Should Know About Audits

Audits are daunting, but we’ve got you covered with this guide!

What are audits?

Premium audits determine your insurance premium, and the information collected during audits is reported to rating agencies. Audits are required for Workers’ Compensation insurance and are vital to make sure all information is accurate and representative. If audits are not completed, the audit will be estimated per state statute up to 300% of your policy, and your policy can be canceled. Even if you’ve paid for the audit, your policy can remain canceled until the audit is completed. 

Physical Audits

“A physical workers’ comp audit, also known as a field audit, takes place at your business and is usually conducted within 60 days of the expiration date on your insurance policy.” (workcomplab)

Audits are more likely to be physical after the  the first year. After the first year, types of audits are determined by state statutes. Normandy partners with vendors for physical audits, who will contact you by mail, email, or phone. This is the information that is needed for the physical audits:

  1. Detailed Payroll Report (separate & total by class/job type and Officers) for Period.
  2. State Quarterly Report (Department of Revenue Employer's Quarterly Report)
  3. 941's (Employer's Quarterly Federal Tax Return)
  4. Payroll Register
  5. General ledger
  6. Profit & loss Statement
  7. Names and amounts paid to each subcontractor along with copies of Certificates of Insurance or Exemption forms covering the audit period. (About Officer's Certification: Please verify with your Agent of record that your exemption is valid and up to date.)

For mail audits, insureds will complete the form provided to them and send it back by mail, fax or email along with federal 941's forms, state quarterly reports, or a detailed payroll summary for the policy period.

Frequent questions about audits

Audits are confusing, so here are some frequently asked questions we get about some unique circumstances.

  1. Overtime should be included in the audit, but one-third is allowed to be excluded. This also applies to double time. State requirements surrounding overtime pay and audits differ slightly, so check your state laws to be sure. 
  1. You should still complete an audit if your policy is billed as Pay Go. This is to finalize actual payroll figures. 
  1. You should still complete an audit if you file with another insurance company to finalize figures.

  2. If the officers are included, they will be charged the Officer’s minimum payroll per state statue. If you do not want them to be included, you will have to have them excluded per the state statue. Each state has their rules and forms.

Visit www.normandyins.com/audit-faq to get the answers to our most frequently asked questions about audits. 

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