Insurance Premium Audit Tips & Tricks For Restoration Contractors (Part 2)
Last week we began discussing insurance premium audits and how your restoration company can prepare for them. (You can find the full blog post here.)
This week we want to discuss what your company can do to save money on the audit, avoid any premium increases, and answer your most common questions.
How Can You Save Money?
You can save on premium dollars in several ways depending on your restoration company's operations and insurance coverage; you can save on premium dollars in several ways. (Not all of the following may apply to your company.)
1. PAYROLL SEPARATION – If your policy has more than one classification code, payroll must be shown separately for each classification to take advantage of lower-rated classifications. If not, all payroll may be assigned to the highest-rated classification.
Also, have clearly defined job descriptions written down for each employee. Typically, when there is confusion related to the specific duties of an employee, there is a good chance they will be placed into the higher-rated classification code, which will result in additional premiums owed to the insurance company.
2. EMPLOYEE TIPS – In certain states, tips declared by employees may be excluded from their gross payroll only if separately identified.
3. OVERTIME PAY – In certain states, you can deduct the premium portion of overtime pay from the gross income in calculating payroll. For example, if an employee is paid a regular rate of $10.00 per hour and receives time-and-a-half for overtime, the employee's pay rate is $15.00 for each overtime hour. The $5.00 for each overtime hour can be deducted from your gross payroll only if shown separately on your records. You must show overtime separately for each classification.
4. CERTIFICATES OF INSURANCE – Have certificates available for the audit (at your premises or your accountant's) to ensure you aren't unnecessarily billed for an extra premium.
Certificates must cover the period when the subcontractor worked for you (this may require Certificates covering two different policy terms for the subcontractor in some cases). Also, the subcontractor must carry the same liability limits as your policy. For example – if you take general liability limits of $ 1,000,000 per occurrence & $2,000,000 per aggregate, your subcontractor will need those exact amounts of liability coverage. If the subcontractor has employees, they must also carry the statutory limits for workers' compensation coverage.
Q: Why is an audit necessary?
A: To calculate the amount of premium you must be charged. An audit determines actual exposures and operations. After comparing them with initial estimates and later endorsements, a premium adjustment is made via the Statement of Audit.
Q: What happens If I don't have Certificates of Insurance at audit time?
A: It is in your best interest to request a certificate from a subcontractor at the time the work is performed rather than at the time of audit. You will be charged for those subcontractors not providing General Liability certificates
Q: Several of my employees do more than one type of work. How should I assign their payrolls?
A: If these employees are not in construction, they will go into the highest-rated class in which they work. Payrolls may be divided into appropriate construction classifications, provided the division is reflected in the original records in dollar amounts.
If you have any additional questions regarding premium audits and what your restoration company can do to save money on them, please don't hesitate to call our office at (866) 377-2133.