Once a year your insurance carrier sends someone to check whether the payroll you estimated matches the payroll you ran. If the records are clean, it takes an afternoon. If they aren't, every dollar the auditor can't classify gets pushed into your highest-rated class code, and the bill that follows is not a small one.
This shows up most often with construction clients around Lexington, where crews shift between roles and subcontractors come and go, but any business with a mix of field and office staff runs into it. We set up payroll so labor is coded correctly as it happens, keep certificates of insurance on file for every sub, and put together the audit package ahead of the visit. The auditor gets what they asked for in one folder, and the conversation stays short.
Preparation is most of the job. The auditor is going to ask for payroll records by class code, overtime broken out, officer compensation identified, cash disbursements to anyone who wasn't an employee, and certificates of insurance for every subcontractor who set foot on a job. Assembling that from scratch in the week before the visit is how businesses end up handing over incomplete records and eating the difference. We keep it assembled as the year goes, so the request list is already answered when it arrives.
If a sub can't produce a valid certificate of insurance for the period they worked, the carrier can treat what you paid them as your payroll and charge premium on it. That is one of the most expensive findings in these audits, and it is also one of the easiest to avoid. The certificate has to be current, it has to cover the dates worked, and somebody has to actually collect it before the first invoice gets paid. We build that step into your accounts payable process so nobody has to remember it later, and track expiration dates so a lapsed policy gets caught while the sub is still on the job.
An audit result is a bill, and bills can be wrong. Misapplied class codes, overtime that should have been excluded, wages counted twice because an employee changed roles mid-year, subs charged as employees despite having coverage. Any of those is worth disputing, and disputing works better with documentation than with argument. We review the audit worksheet against your payroll records line by line, identify what doesn't hold up, and put the response together with the numbers attached. Sometimes the finding stands. Often enough it doesn't, and the correction is worth the afternoon it took.
Your audit date is on the policy, and it does not move. The useful window is the ninety days before it, when there's still time to chase a missing certificate or clean up a class code that got applied wrong in March. If your policy renews soon, that's the moment to have someone look at the payroll data. Book a consultation and bring your policy declarations page and last year's audit results. That's usually enough to see whether this year is going to be routine or expensive.
Not too late, but tight. A month is enough to pull payroll by class code, chase certificates from active subs, and identify anything that's going to draw a question. It's not enough to fix a year of miscoded labor. Get the packet built now, handle the audit, then set the coding up properly for next year.
Your agent sells and services the policy and can be genuinely helpful at audit time, but they don't keep your payroll records. The auditor is looking at your books, not the agent's file. Having both is the good outcome: an agent who knows the policy and someone on your side who can produce the numbers behind it.
Usually yes, but often at a capped amount rather than actual pay, and the cap depends on the state and the entity type. Getting this wrong in either direction is common. Officers left out entirely raise questions, and officers included at full salary can inflate premium well past what the rules require. It gets checked before the packet goes over.
Other work in this area that tends to come up in the same conversation.
Every new employee reported to the state inside the required window, a small filing that's easy to forget and carries penalties when it's missed.
Read moreYear-end wage statements reconciled against your quarterly returns before anything is filed, then distributed to employees and submitted to the agencies.
Read moreContractor payments reviewed, W-9s chased down before January, and forms issued to the right vendors under the right box.
Read moreBook a consultation and we will map out a first step you can actually act on.
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