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 What is premium?

Premium is based on the amount of payroll paid to employees during the policy period. Payroll means money or substitutes for money. The following is a list of items considered payroll and are included on your workers' compensation audit:

1.  Wages and salaries

2.  Commissions and draws against commissions.

3.  Bonuses

4.  Extra pay for overtime

5.  Pay for holidays, vacations, or periods of sickness

6.  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

7.  Payment to employees on any basis other than time worked, such as piecework, profit sharing, or incentive plans

8.  The value of meals received by employees as part of their pay to the extent shown in the financial records

9.  The value of store certificates, merchandise, credits or any other substitute for money received by employees as part of their pay

10.  Cafeteria plans, 401K's, annuity plans, Davis-Bacon wages, etc.

11.  Expense reimbursements that cannot be substantiated as a valid business expense

12.  Payments for filming of commercials excluding subsequent residuals earned by the individuals participating in the commercial

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

1.  Tips and other gratuities received by employees

2.  Payments by an employer to group insurance or group pension plans for employees

3.   The value of special rewards for individual invention or discovery

4.  Dismissal or severance payments except for time worked or accrued vacation

5.  Payments for active military duty

6.  Employee discounts on goods purchased from the employee's employer

7.  Valid expense reimbursements substantiated by expense reports

8.  Meal money for late work

9.  Work uniform allowance

10.  Sick pay paid by a third party (such as group insurance)

11.  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

What about my refund?

If a refund is due from the audit and there is a current active policy or a prior policy with an outstanding balance, the refund will apply to any outstanding balances first, then any remainder will be issued to the policyholder. If premium was financed for the policy, the refund will be returned to the premium finance company. If no outstanding balance exists, the refund will be issued to the policyholder 10 days after the invoice date.

Can I be charged for contractors and subcontractors?

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 employer for anyone considered to be an employee or an employee of an uninsured subcontractor.

We will NOT charge premium for an individual we deem to be an independent contractor.  These individuals are not covered under the Workers' Compensation Act.  Your auditor must determine if an individual meets the standards to be considered an independent contractor.  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.

If your subcontractors/contractors have their own workers' compensation insurance, provide the auditor with a valid Certificate of Insurance for each subcontractor and your auditor will NOT include payments made to those subcontractors on your audit.  Please make sure that the Certificates of Insurance cover your ENTIRE policy period.  You may need certificates for two (2) different years for a subcontractor in order to cover your entire audit period. The fact that a person is issued a 1099, with no taxes withheld, has no bearing on this determination.

 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. The general contractor should be advised that they may be charged for subcontractors/ contractors at the audit if the forms and supporting documentation do not disprove an employee relationship. Obtaining 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 for each relevant policy period and incomplete forms will not be accepted.

Click here for the Independent Contractor Questionnaire (requires Acrobat Reader to view).

 How can I prepare for an audit?

To prepare for an audit, you will keep records of information needed to compute final premium, in accordance with Part Five, Section E of your policy. These records may include, but are not limited to ledgers, journals, registers, vouchers, contracts/job orders, tax reports, payroll records, and programs for storing and retrieving data.
  • Keep your overtime (i.e., time and a half) separated from gross wages. Be sure to keep the dollar amount as well as the hourly amount. The auditor can deduct the "half" time portion of overtime if it is provided.
  • If you use sub-contractors, have them give you a copy of their Certificate of Insurance for your policy period. Make sure the certificates cover workers' compensation and not just auto or general liability. General liability is not a substitution for workers' compensation.

 Am I being billed twice for my audit?

A bill for the audited policy term and an endorsement to the current policy period can occur on the same day.  When an expired policy term has been audited and the actual payroll is more than the estimated payroll, an adjustment is made to the estimated payroll on the current policy term to correspond with the audited payroll on the expired term.  This adjustment creates additional premium to the current term in addition to the premium owed for audited payroll for the prior policy year. 

 What if I don't agree with the audit?

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, which can be found under Downloadable Forms on www.kemi.com.

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.


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