Those workers' compensation and general liability insurance policies you're holding are really just estimates. Six months after they expire, an auditor will knock on your door looking to figure your actual premium amount. It's based on exposure or, for workers' comp, how many people you have on your payroll. The more people you have, the more “exposed” you are to risk. Over the course of a year, that exposure may change.

“Insurance is typically the last thing an owner thinks of with a new hire,” says Kevin Glaser, president of Risk & Insurance Services Consulting in Oconomowoc, Wis., whose firm serves many building industry clients. “In the case of a new hire, your premiums will increase due to an increased loss exposure for the insurance company. However, if your exposure has decreased during the policy term that is audited, your actual premium will be lower than the estimated dollar amount you paid.”

To help avoid costly audit mistakes, Glaser suggests the following:


  • Make a thoughtful decision about who will work best with the auditor.
  • Review the prior year's audit billing statements and auditor's worksheets.
  • Gather records: payroll, sales, and cash disbursement journals; general ledgers; Social Security reports; and state unemployment tax returns.
  • Review payroll documents to make sure records include breakdowns of wage types by employee, department, and class code.
  • Have certificates of insurance documents for all trade partners.


  • Request that the audit take place on the premises so your records are at hand.
  • Don't be afraid to ask questions.
  • Get a hard copy of the findings.


  • Carefully review your billing statement and compare it to the original policy.

Note changes and discuss anything questionable before paying additional amounts.