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

What documents are required for an audit?

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:

  • Tax Reports
    • Federal Forms 941, 940, 943
    • State Unemployment Quarterly Reports
    • 1096 Transmittal & Accompanying 1099s
    • Income Tax Returns with supporting schedules
  • Payroll Records
  • Profit and Loss Statements
  • Cash Disbursement Journal
  • General Ledger (and the chart of accounts for computerized ledgers)
  • Check register, check stubs, monthly bank statements, cancelled checks and cash receipt books
  • Workers’ Compensation Certificates of Insurance for subcontractors
  • Payment records for all subcontractors and/or contract labor with payment details (e.g. subcontractor name, date of payment, payment amount, job performed and location of job)
What payroll is included in the premium calculation?

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
Can I be charged for subcontractors, contract labor, or independent contractors?

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.

We will not charge premium for an individual we deem to be an independent contractor. Independent contractors are not covered under the Workers’ Compensation Act. Your auditor must consider several factors to make the determination of independent contractor versus employee. To do so, the auditor may ask you to provide the following: (1) invoices for the work completed; (2) a copy of the contract between the policyholder and the contractor (3) a completed KEMI Independent Contractor Questionnaire or any documentation the auditor considers necessary to determine an independent contractor status. The fact that a person is issued a 1099, with no taxes withheld, is not solely determinative of independent contractor status.

What is a KEMI Independent Contractor Questionnaire?

The Independent Contractor Questionnaire (ICQ) is a tool utilized by KEMI to assist in the determination of an employment relationship. Policyholders must be aware they may be charged for subcontractors/contractors at the audit if the forms and supporting documentation do not disprove an employee relationship. Supporting documentation, including contracts, invoices, and business cards will be necessary.  Obtaining Workers’ Compensation Certificates of Insurance on your subcontractors is the best way to avoid charges and potential liability. 

Note: The ICQ is merely a tool. It is not a substitute for coverage. Simply filling out and signing the form does not mean an individual is considered an independent contractor. The ICQ form must be filled out by the worker/contractor in its entirety for each relevant policy period.

Click here for the Independent Contractor Questionnaire.

Can corporate officers be excluded from coverage?

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.

Can sole proprietors, partners, and/or LLC members be excluded from coverage?

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.

What if I don't agree with the audit results?

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 audit@kemi.com.