Some surprises are nice, but an unexpected invoice with an additional premium due to an audit is not one of them 

Step One: Setting Up the Policy

Insurance policy premiums are based on one of the following things:

• Annual Revenue
• Annual Payroll, broken down by job type (Example: Installer vs. Sales vs. Clerical)
• Subcontractor Cost (Including material cost purchased by the subcontractor)

The policy premium is determined by an estimated dollar amount for each of these categories for the next 12 months

Getting that estimate as close to what happens will be critical

• If the estimate is too high vs actual, you could be subject to a return premium. This would be money that you could have used for other things throughout the year
• If the estimate is too low vs actual, you could be subject to an additional premium. This would be an unexpected expense that is typically required to be paid all at once to the insurance company

Classifying expenses under Subcontractor Cost is drastically less premium than the payroll classification. That being said, for expenses to be able to remain under subcontractor costs, you must:

• Use Subcontractors that have their insurance
• Collect Proof of Insurance from all subcontractors in the form of a certificate of insurance (aka COI or Acord 25) and keep it on file in preparation for the audit
• Verify that the Certificate of Insurance has ALL necessary coverages
  • General Liability
  • Auto Liability
  • Workers Compensation

If any expense does not fit the criteria for subcontractor cost, that expense will be moved to payroll, and it will drastically increase the overall premium

As an Owner/officer, you have the choice to include or exclude yourself from workers' compensation coverage. You do not have this choice for General Liability.

• If you exclude yourself, a signed owner exclusion form is required when putting the policy in place
• If you include yourself, you must factor in your payroll amount into the overall payroll estimates
  • If you are not taking a salary, you will be subject to your state’s minimal owner payroll number (various greatly by state - talk with your consultant to know what applies for your state)

Employees can not be classified under multiple job classifications. Employees must be classified 100% under the most risky aspect of their job, even if it’s an occasional responsibility

• Example: The role of General Manager (GM) is often a source of confusion due to their wide scope of responsibilities. 
  • If they help even just once a week on installs, they have to be classified 100% under an installer.
  • If they never do installs but do both sales and admin work, they have to be classified 100% under Sales.
  • If they ONLY do clerical/admin work, then they can be 100% classified as Clerical
  • Please note: Some insurance companies will put a GM under the riskiest classification no matter what due to the POSSIBLY of needing to help on jobs if there is an emergency.

Step Two: Stay Organized Throughout the Year

Be firm and consistent with 1) requiring subcontractors to have insurance in place and 2) collecting proof of insurance through a certificate of insurance and keeping it on file for every subcontractor

• If you are unsure what to require of your subs, request a sample Subcontractor Agreement from your consultant or find the sample that we have attached in this learning portal

If you do decide to use a subcontractor that doesn’t have insurance, be aware that you are then responsible for them as well as any additional premiums

Any changes in expense estimates from any of the three categories (Revenue, Payroll, or Subcontractor Cost) should be promptly reported to Rikor. The sooner you make appropriate changes, the more monthly installments will be available to break up any additional premium

Rikor will actively reach out to you 6 months into the policy to facilitate the process of updating the policy as needed.

Step Three: Be Prepared with Documentation

Pull Payrolls Reports for the period of the policy (for example 12/20/23 - 12/20/24)

Organize the Payroll Report based on

• Employee Name
• Employee Job Description (Should make payroll classifications)
• Payroll for that individual for the period of the policy

If the owner is included in workers' compensation coverage, be ready to report

• Ownership Structure (Percentage Breakdown for all Owners)
• Job Duties of Each Owner

Prepare the folder of all Subcontractors’ Proof of Insurance

Prepare the most recent 12-month financials (profit and loss) to show total revenue, payroll expense, and subcontractor expense

Step Four: Be Prompt 

Turn in all request documentation as soon as you are notified by the insurance company

Failure to comply promptly with an audit will result in a “non-compliant” status, which then allows the insurance company to process the audit by adding a non-compliance fee equal to 20% of the original annual premium

If the audit premium is not paid within the specified time

• Your current policy will be canceled
• The additional premium will be sent to collections. Once it has been sent to collections, there is nothing that you can do to fight the non-compliance status

Step Five: Review the Audit for Accuracy

Compare the audit with the documentation that was originally submitted. If something is off, promptly notify the insurance company. Audits often have mistakes, so it’s important to check for accuracy. If needed, ask your insurance consultant for assistance