Audits

Premium audits for contractor insurance, explained

Why contractor policies are audited, the four reasons an audit produces a bill, and how to avoid the surprise at the end of the term.

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Priced on payrollSo it is audited

4 causesOf a surprise bill

SubsLargest avoidable cause

Report growthSpread the cost

Why the audit exists

General liability and workers compensation are priced on payroll, and payroll is not known when the policy starts. So the policy is written on an estimate, and the audit reconciles that estimate against what actually happened during the term.

This is normal and it runs both ways. If you did less work than expected, you get money back. If you grew, or used uninsured subcontractors, the audit produces a bill.

Have these ready

Payroll records by employee and class
Quarterly tax filings
Subcontractor certificates and payments
Certificates of insurance from each sub
A list of any new trades or states

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The four reasons an audit produces a bill

Payroll was understated. The estimate was based on what you expected to pay. Growth, overtime and bonuses all raise the actual figure above it.
Uninsured subcontractors were charged back. If a sub carried no coverage and cannot show a certificate, their payments are often treated as your payroll. This is the most surprising line on a construction audit.
A class code was corrected. If the audit finds the work was more hazardous than the original classification assumed, the rate rises and the difference is charged.
New states or trades were picked up. Work in a state not on the policy, or a trade not in the original description, gets added at audit.

How to avoid the surprise

Estimate payroll honestly at the start. A deliberately low estimate does not reduce what you owe, it only moves the bill to a less convenient time.
Collect certificates from every sub. This is the single largest avoidable cause of a large audit bill. An uninsured sub becomes your payroll.
Report growth during the term. Mid-term payroll endorsements spread the cost instead of concentrating it at audit.
Tell us about new trades or states as they happen. It is cheaper and simpler to add them while the policy is running than to explain them afterwards.

If your audit bill is large, ask which of the four causes produced it. The answer is usually fixable for the following year, and sometimes the audit itself can be corrected if the records show something different.

Common questions

What is a premium audit?

A reconciliation at the end of the policy term between the payroll the policy was priced on and the payroll you actually had. It is standard on general liability and workers compensation because both are priced on payroll.

Why did I get a bill after my policy ended?

Because the policy was written on an estimated payroll and the actual figure was higher. Growth, overtime, uninsured subcontractors charged back, or a corrected class code all produce this.

Do uninsured subcontractors really affect my premium?

Yes, and it is the most common surprise. If a sub cannot show a certificate of insurance, their payments are often treated as your payroll and charged at your rate.

Can I avoid a large audit bill?

Mostly yes. Estimate payroll honestly at the start, collect current certificates from every subcontractor, and report growth during the term so the cost is spread rather than concentrated at the end.

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