Premium Audits

When KEMI issues a policy, the cost of the policy is based upon the policyholder’s classification and payroll estimates. An audit is completed at the end of the policy term to verify actual classification(s) and determine actual payrolls.

KEMI will contact you and request information for a routine audit. The audit may be conducted by a KEMI representative or a third party hired by KEMI. Audits may be conducted in the field at the location where the business records are maintained, by mail or online.

Audits are completed by verifying operations, reviewing payroll records and allocating payroll between applicable classification codes. The auditor will review your information and may ask additional questions. KEMI will send you a summary of the audit results. 

Once the audit is completed, KEMI will either bill the policyholder for additional premium if the actual exposure is more than the estimate or issue the policyholder a refund if the actual exposure is less than the estimate.

KEMI will contact you and request information for a routine audit.

The auditor will review your information, ask questions, and send you a summary of the audit results.

Additional premium may be
owed or refunded.

Frequently Asked Questions

In accordance with your KEMI policy (see Part 5-E titled “Final Premium/Audit”)KEMI must have access to policyholder records to complete the premium audit. Some records KEMI may request include, but are not limited to, the following:

  • Payroll summary by employee for the policy term (include gross wages and overtime wages).
  • Job title and job duties for each employee.
  • Federal Form 941s and State Unemployment Quarterly Reports (ex., Kentucky UI-3) for the quarters that align with the policy term.
  • Payment records for all subcontractors, contract labor, and casual/cash labor for the policy term (include name, dates paid, amount paid, and job performed).
  • Form 1096 Transmittal and accompanying Form 1099s.
  • Workers’ compensation certificates of insurance (COI) for subcontractors.
  • Most recently filed annual tax return for the business with all supporting schedules and statements.
  • Profit and loss statement for the policy term.

Policy premium is based on the amount paid (including money or substitutes for money) to employees during the policy period. The following is a list of items considered payroll and included on your workers’ compensation audit:

  • Wages and salaries
  • Commissions and draws against commissions
  • Bonuses
  • Extra pay for overtime
  • Pay for holidays, vacations, or periods of sickness
  • Payment by an employer of amounts otherwise required by law to be paid by employees to statutory insurance or pension plans such as the Federal Social Security Act
  • Payment to employees on any basis other than time worked, such as piecework, profit sharing, or incentive plans
  • The value of meals received by employees as part of their pay to the extent shown in the financial records
  • The value of store certificates, merchandise, credits or any other substitute for money received by employees as part of their pay
  • Cafeteria plans, 401K’s, annuity plans, Davis-Bacon wages, etc.
  • Expense reimbursements that cannot be substantiated as a valid business expense

The following is a list of items considered payroll and NOT included on your workers’ compensation audit:

  • Tips and other gratuities received by employees
  • Payments by an employer to group insurance or group pension plans for employees
  • The value of special rewards for individual invention or discovery
  • Dismissal or severance payments except for time worked or accrued vacation
  • Payments for active military duty
  • Employee discounts on goods purchased from the employee’s employer
  • Valid expense reimbursements substantiated by expense reports
  • Meal money for late work
  • Work uniform allowance
  • Sick pay paid by a third party (such as group insurance)
  • Employer-provided perquisites (“perks”) such as:  an automobile, an airplane flight, an incentive vacation (i.e. contest winner), a discount, a club membership or tickets to entertainment events

The Kentucky Workers’ Compensation Act requires an employer to provide coverage to employees, including employees of any uninsured subcontractor hired. KEMI will collect premium from the policyholder for any employee of an uninsured subcontractor.

If the subcontractors have their own workers’ compensation insurance, you must provide KEMI with a valid Certificate of Insurance for the period that work was performed. A KEMI auditor may then make the determination not to charge premium for the insured subcontractors.

If a policyholder wishes to consider any portion of their contract labor as an independent contractor(s), the following information is required to assist in the determination of an employment relationship or independent contractor status:

  1. Signed copy of contract detailing independent contractor relationship or copy of bid/proposal for jobs completed by contractor.
  2. All invoices for material and labor used during the policy period between insured and the contractor.
  3. Valid General Liability certificate of insurance (covering at least 6 months of policy period of insured).
  4. Signed affidavit regarding employees, contract labor, casual labor, or subcontractors used for any of the work performed for the insured.
       – Independent Contractor Affidavit | Independent Contractor Affidavit (Spanish)

To be excluded from coverage, all information above must be received during the premium audit process and must disprove an employee relationship.

KEMI reserves the right to charge for labor on a contractor, despite having all required information, based on additional information received during the policy period or at final audit.

Under Kentucky law, corporate officers are automatically covered under the Workers’ Compensation Act of Kentucky, unless they elect not to be covered. If an officer elects to be excluded from the Workers’ Compensation Act, KEMI requires a signed and stamped copy of the filed Form 4 with the Department of Workers’ Claims.

Sole proprietors, partners in partnerships, and members of limited liability companies are not automatically covered under the Workers’ Compensation Act. They must elect to be covered.

Should a dispute arise, please follow the steps below to expedite any necessary adjustments.

  1. Request a copy of the audit worksheets to help determine the exact nature of the discrepancy.
  2. Complete the Premium Audit Revision Request.

Note: Address your inquiry to the Premium Audit Department at KEMI as soon as possible. If there is a delay in reporting an audit dispute and you have a balance due from the audit, you risk the possibility of your policy being cancelled for non-payment. Any remaining amount due after the dispute is addressed is due immediately.

Complete an Online Audit

If you received a letter from KEMI requesting the completion of an Online Audit, please login here using the information that was provided. 

Still have questions?

KEMI’s Audit Team is here to help answer your questions about the audit process. Email us at