Implications of a General Liability Audit on Small Business

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General Liability Audit


The What & Why You Received An Audit

Business conditions are liable to a multitude of changes that might impact the growth of a business. Small businesses should be able to handle changes in government regulations, personnel shifts, and technological advances. These small changes often change a company’s exposure to liability lawsuits. The general liability auditing determines if the company’s policy is adequate and if adjustments in its premiums, deductibles, and coverage are required to accommodate any changes in the business.

General Liability Auditing

Most of the data required during an audit come from the federal payroll tax returns. The company’s payroll information is vital when it comes to establishing how much risk the company is exposed to.

The auditor also checks if the company has proper employee classification concerning which area of expertise each employee is based. Classifying each employee depending on the jobs they do means that all the employees are exposed to different levels of risk and, therefore, should be insured in the same manner.

General Liability audits are supposed to inform the business owner about the company’s changes that might affect its liability. It also confirms the adequacy of business insurance that covers the company.

Preparing for a general inspection is easy. You should dig out the business insurance documentation and payroll data, which will help the auditor to determine if the current policy provides adequate protection against risks.

There are two types of liability audits. They include a sales-based inspection and a payroll-based review, which are discussed in detail down below.

Payroll-Based Audits

A payroll audit analyses the company’s payroll to ensure accurate documentation that can easily portray each employee’s exposure to risk. An auditor examines tax withholding, wages, and employee pay rates.

A proper payroll review should be conducted at least once every year to ensure that the process is up to date.

A payroll-based review is one that requires particular company documentation. It requires the company’s accountants to provide an accurate payroll breakdown in adherence to the federal payroll tax returns.

While preparing payroll-based audits, some of the vital documentation required includes source documents that have proof of all the transactions conducted by the company during the policy period and verification documents from the revenues office.

Apart from the insurance implications of a payroll review, the findings of this review can also be used in preventing payroll fraud while even weeding out ghost employees in the system.

The review is also meant to verify that the tax withholding is accurate and are compliant to the employment rules and regulations.

Sales Based Insurance Audits

When conducting a sales-based insurance review, some of the critical documents required by insurance providers include source documents and verification documents.

This type of inspection will require the business owner to provide sales information from the policy period. Some of the source documents needed during this review include sales journals, general ledgers, and income statements.

Verification documents include; federal tax returns, state sales tax returns, and income statements depicting the profits and losses in the business.

How to Prepare for a General Insurance Audit

Below are some of the critical factors that you need to consider when you are preparing for a liability review by your insurer:

1. Determine each employee’s class code and separate the payrolls

Each employee should be classified to depict the total risk exposure when they are at work. For instance, a construction worker has high liability as compared to an office clerk.

Some employees also participate in both upper and low-risk jobs, thus requiring the employer to split the payrolls to get the exact amount needed to be insured.

2. Check the payroll and sales estimates in the current policy.

This is done to ensure that the company remains on track in terms of the last policy. This helps small business owners to keep track of all the record all the payrolls throughout the year to avoid large review bills.

The estimate given at the beginning of one’s policy can be adjusted to suit the changes that have occurred in the business during the policy period.

3. Collect insurance certificates from all the subcontractors you use.

Collecting insurance certificates from the subcontractors you have used will allow the auditors to assess the extent of liability the company is exposed to under such operations.

4. Simplify the auditor’s job.

In most cases, an insurance provider will inform the small business owner before sending an auditor. Therefore, it is both time and cost-effective to have all the required documentation ready for the review.

In some cases, business owners often appoint an employee with a proper understanding of the company’s financials to assist with the audits.

Bottom Line

One of the critical areas of running a small business or company that should not be neglected entirely is the general insurance auditing. Failure to comply with the company’s review reports might lead to falling short of its bottom line.

Insurance companies are legally allowed to estimate the extent of liability and thus calculate even higher premiums if business owners refuse to conduct liability audits.
The goal of a review is to bring awareness to situations that can affect your insurance premiums.

These include changes in employee wages, taking up new clients, or shifting the business dynamic to more high-risk clients.

Returning To Work During Covid-19, The New Normal

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What to expect when you return

The pandemic changed a lot of things in the work environment. People that were working from home during staying at home orders are transitioning back to the office. Now it is all about making the workplace safe during the return to the office. As people return, they should expect to see the workplace look quite different during this Covid-19 crisis.

It should not be a surprise to anyone that has had social gatherings for birthdays or holiday parties in the office to see these things come to a halt. These types of gatherings are no longer feasible inside of the work environments.

Mask Requirements

Another thing that people can expect with work safety concerns as they are transitioning back to the work environment is the requirement of masks. There are some work environments where the masks must be worn on a regular basis throughout the course of the workday.

This is often the case for people that work in healthcare. They do not have the luxury of removing their masks while they are working. There are some that work in automotive and healthcare environments that will need to wear the masks when they are in close vicinity to other people. It all really depends on the environment and how much close contact is made.

Temperature Checks

Another thing that people will become mindful of as they return to work is the regular temperature checks. People that have a temperature that is over 100 will find themselves being asked to leave and get tested for the Coronavirus. Anyone that is battling any sickness will instantly raise red flags. The possibility of infecting someone else at the office is what causes the alarm with work safety.

The best thing that people can do is practice social distancing. Employees will also be expected to wear masks when they are away from their desks.

A Safe Work Environment

What most people will find out is that there is a new fear when it comes to the Coronavirus. They will find that hand sanitizer is clearly visible in break rooms and other common area office spaces like copier rooms.

Leaders that are in charge will send out emails and memos as reminders about how to be safe while working in the work environment. All of these are things that play a part in promoting safety and healthy work environments as people return to work. There will be COVID-19 memorandums about washing hands thoroughly and wearing masks.

Meetings

Even though people will be returning to work there are still going to be more virtual meetings whenever possible. Meeting in a conference room may not be on the agenda at this time. More people will be doing the video chats from their office space.

The work environment is changing, and safety is a much bigger precaution. People that are interested in coming back to the office must be aware of how the office place has changed. There is a greater need for reducing interactions and social distancing is the way.


 

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