Contractors Make A Big Mistake By Underestimating Workers Compensation Payroll

"When setting up my Workers´ Compensation and General Liability policies, I will intentionally underestimate my projected payrolls and amounts paid to uninsured subcontractors in order to lower my premiums. Once the insurance company audits my books at the end of the year, and the actual payrolls are determined, I will pay the additional premium at that time. No need in paying premiums before I really have to!"

This "mindset" is extremely dangerous and has resulted in many a good contractor having to shut down his business because of bankruptcy. A large additional premium owed at audit is payable in full (with no financing) within 30 days of the audit billing. This large payment is compounded by the fact that the contractor has just paid his down payment to renew his policies. Furthermore, the new policies will be amended by the insurance company to reflect the higher payroll figures that were revealed by audit. This "triple dose" can result in a cash flow nightmare that the contractor can´t afford to pay. Failure to pay the audit premium will result in the insurance company´s unleashing its debt collectors and subsequent legal action. Also, failure to pay the new amended premium on the current policies will result in their cancellation. Once your policies have been canceled, this must be revealed when you try to apply for insurance with a new agent or else you have committed fraud. In most cases, no insurance company will write your policies if you have failed to pay amounts owed to your previous insurance company.

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Myth #6: Underestimating Payrolls To Save Money