Running a business in New York, Westchester, or Fairfield comes with both opportunity and oversight. One area where business owners often stumble is insurance audits. Commercial insurance premiums are typically based on your projected payroll and revenue. But what happens when those projections don’t match reality?
The answer: you’re not facing penalties, but you may owe an adjustment. Insurers use audits to align your premiums with your actual risk. This guide explains how payroll and revenue affect your coverage, what an insurance audit involves, and how to prepare so you avoid surprises.
Why Payroll and Revenue Matter in Business Insurance
Insurance premiums are not random numbers. They’re tied directly to the size and scale of your business, measured by payroll, revenue, and operations. Carriers use these figures to evaluate risk exposure.
- Workers’ Compensation – Premiums are based on payroll and job classification codes. For example, a construction employee carries a higher rate than an office assistant.
- General Liability – Often calculated from gross sales. The more revenue, the greater the exposure to third-party claims.
- Umbrella and Excess Liability – These also scale with payroll and revenue, ensuring coverage reflects real-world operations.
A restaurant in Fairfield hires additional staff for summer tourism. Payroll rises 25%. The workers’ comp premium will increase accordingly at audit, even though the initial policy estimate was lower.
What Is an Insurance Audit?
An insurance audit is the carrier’s way of confirming that your reported exposures (payroll, revenue, subcontractors) match reality. Audits are standard and typically occur:
- At the end of a policy term
- Within 60 days of renewal
- After major changes in staffing or operations
How it Works: The Insurance Audit Process, Step by Step
- Notice – The carrier notifies you that an audit is due.
- Information Request – Payroll records, sales summaries, tax forms, and subcontractor COIs are requested.
- Submission – You or your accountant provide the requested documents.
- Review – The insurer compares actual numbers against estimates.
- Adjustment – Premiums are recalculated based on true exposure.
- Invoice or Refund – If you underreported, you’ll owe the difference. If you overreported, you may receive a credit, depending on the carrier.
What Will the Insurance Company Ask For During an Audit?
During an audit, expect to provide:
- Payroll reports (W-2s, 1099s, or payroll service summaries)
- Gross sales reports or profit and loss statements
- Federal and state tax returns
- Certificates of insurance for subcontractors
These records allow the insurer to verify exposures accurately. Missing documents may cause delays or result in the insurer assigning higher default estimates.
What Happens If You Underreport Payroll or Revenue?
If your actual payroll or revenue is higher than what you reported:
- Your premium is adjusted upward.
- You receive a bill for the difference.
This is not a penalty. It’s a correction to align your policy with real risk.
If you overreport, some carriers issue refunds or credits. However, not all do, so overestimating doesn’t always work in your favor.
A Westchester design firm projects $500,000 in revenue. By year’s end, they earn $750,000. At audit, their general liability premium increases by $1,200. The firm isn’t penalized; they simply pay the difference.
Consequences of Missing or Inaccurate Records
When businesses cannot produce accurate records, carriers may apply default classifications and assumptions that result in higher costs. This can mean paying more than you should.
Best Practices for Record-keeping
- Maintain organized payroll reports by quarter.
- Track subcontractors separately and keep certificates of insurance.
- Log gross sales consistently.
- Coordinate with your accountant to prepare summaries.
Insurance Audit Trends in the Tri-State Area
New York City – Contractor-heavy industries are common. If subcontractors lack certificates of insurance, carriers may classify them as employees, raising payroll exposure.
Westchester County – Professional services, retail, and real estate firms often experience faster-than-expected revenue growth.
Fairfield County – Seasonal businesses, such as hospitality and tourism, face large adjustments due to fluctuating payroll and sales.
NYC Retail Store – A shop estimates $1 million in annual revenue. With a strong holiday season, sales reach $1.4 million. At audit, general liability premiums are adjusted to reflect actual sales.
Westchester Consulting Firm – The firm uses subcontractors but fails to collect COIs. During the audit, the carrier treats subcontractor costs as payroll, significantly increasing workers’ comp premiums.
Fairfield Restaurant – Payroll doubles in summer. At audit, workers’ comp premiums adjust accordingly. With planning, the owner sets aside reserves to manage the cost smoothly.
What Happens If You Ignore an Insurance Audit?
Failure to comply with an audit can have serious consequences:
- Non-renewal of your policy
- Cancellation of coverage
- Estimated audit premiums (often inflated to the high side)
Ignoring audits does not make the obligation disappear. It only creates more cost and less flexibility.
FAQs: Insurance Audits in New York, Westchester, and Fairfield
Do audits happen every year?
Yes, most commercial policies require annual audits to verify exposures.
Do subcontractors count as payroll?
Not if you collect valid certificates of insurance. Without COIs, insurers may classify them as employees.
What happens if I overreport?
Some carriers issue refunds or credits. Others keep the premium. Always clarify with your insurer.
Is underreporting considered fraud?
Unintentional underreporting is not fraud. Intentional misrepresentation, however, can result in cancellation or denial of claims.
Can I prepare for an audit in advance?
Yes. Keep payroll and revenue records organized and request quarterly reports from your accountant.
How much time do I have to respond to an audit request?
Typically 30–60 days. Delays can result in estimated audits at higher costs.
How Refine Risk Helps Business Owners
At Refine Risk, we prepare clients for audits from day one. Our advisors:
- Estimate payroll and revenue conservatively but clearly
- Provide checklists for audit preparation
- Communicate with carriers to resolve discrepancies
- Adjust coverage as businesses grow
This proactive approach keeps clients informed and avoids surprises at audit time.
Stay Compliant, Stay Confident
Your payroll and revenue estimates are just a starting point. Insurance audits ensure your premiums match your real operations. While underreporting isn’t a penalty, it can lead to higher bills if you’re not prepared.
With the right planning and clean records, audits become a manageable routine. Refine Risk partners with business owners across NYC, Westchester, and Fairfield to ensure coverage keeps pace with growth.
Contact Refine Risk today to schedule a consultation and prepare for your next insurance audit.