Five Tips on How General Contractors Can Avoid a Nightmare General Liability Audit

Don’t let the word ‘audit’ scare you. All general contractors will go through an annual general liability premium audit. The audit is simply a comparison of estimated numbers to actual. If the audit shows lower numbers than originally estimated, you may expect a premium refund. If the actual numbers are higher than estimated, you can expect to be billed for the additional premium due. Keeping thorough and complete records of your sales, payroll, and subcontractor labor costs will make your general liability audit a breeze.

Insurance Year vs Calendar Year
It is likely that your premium renewal date is not January 1st. Your insurance year may run from November to November instead. This means the information you need to provide for total sales, payroll, etc. will likely include a combination of data from two different calendar years. This is one of the reasons your bookkeeping needs to have accurate monthly totals and not just year-end or quarterly reports.

Be Prepared for the Audit Appointment
As soon as you get your letter notifying you of the upcoming audit appointment start gathering the supporting documents and information requested. Having your information complete and well-organized will help the general liability audit go smoothly and be completed quickly.

Be Available to Answer Questions
The person who prepared the documents for the audit should be available to answer questions during the audit. Whether this is your bookkeeper, accountant, or office manager, make sure they fully understand how your general liability is calculated and how the insurance auditor will be using the information provided.

General Liability Audit Payroll Records
The area of the general liability audit that can be the most confusing and require the most preparation is your payroll records. Any overtime or double-time pay to employees must be reported separate from regular pay. Your monthly records must match with your quarterly payroll tax reports. Again, the fact that your insurance year runs between two calendar years will mean some extra work creating a report that accurately calculates these totals.

Be Financially Prepared
If you know that your sales for the year have been much higher than the dollar amount used to calculate your general liability premium, start setting aside extra funds to pay for the premium shortfall. Don’t be taken by surprise and short on funds when the premium audit results in a large invoice from your insurance company.

At The Clausen Agency Inc., we make sure our general contractor clients fully understand how their general liability premiums are calculated and how to prepare for their annual audit.  We’d be happy to review all your insurance coverage and provide you a comprehensive quote.


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