Premium Audit Process

Your Premium Audit Made Easy brochure - English & Spanish
Audit Billings and Application of Subsequent Payments flyer -
Guidelines for Validating Independent Contractor Status

The accurate and timely reporting of your payroll is paramount to correct premium calculation. An employer may not, with fraudulent intent, misrepresent the wages on which a premium is based. It is a fraudulent insurance act for a person to knowingly or willfully make any false or fraudulent statement or representation in or with reference to any application for insurance.

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Q: What is a Premium Audit?

A: A workers' compensation premium audit is a process of reviewing a policyholder's records and operations to ensure that the coverage information is accurate. The goal of the audit is to assess and collect premium that accurately represents the proper risk exposure – no more and no less.

Q: Why is a Premium Audit Necessary?

A: Your premium is calculated based on the projected payroll information we receive from you at the inception of the term policy. To ensure that your premium is priced accurately and fairly, a Chesapeake Employers auditor will compare the payroll that you projected at the inception of your policy to the actual payroll at the end of your term. Each policy term may have a physical audit or a mail audit, based on the size of the policy and/or the nature of the operation.

Note: Some policies may not require an audit at all, based on guidelines that are set by Chesapeake Employers’ Insurance Company.

Q: What are the Types of Premium Audits?

A: Chesapeake Employers conducts four types of audits. Chesapeake Employers reserves the right to determine the method/frequency of audits:

Field Audit – Conducted on site with the policyholder and Chesapeake Employers’ auditor. Audits are scheduled at the expiration or cancellation of the policy.

Mail Audit – A policyholder is mailed the payroll audit forms and instructions at the expiration or cancellation of the policy term.

Preliminary Audit – Conducted on site with a new policyholder and Chesapeake Employers’ auditor at the inception of the policy (usually within 60 days of the policy issuance). This type of audit is used to ensure the business operations and/or payroll are accurate.

Interim Audit – Conducted on site with the policyholder and Chesapeake Employers’ auditor during the course of the term policy (i.e., quarterly or semi-annually). Interim audits are used to adjust a policy to reflect significant changes in business operations and/or payroll during the policy term.

Q: How Do I Prepare for a Premium Audit?

A: Please see Your Premium Audit Checklist, located at the end of this section, for a complete list of records needed during an audit.

Q: Can I File My Premium Audit Online?

A: Policyholders selected for a mail audit now have an online option for submitting their audit information. The online audit process is conducted via a secure third-party website. All information passing through this system is encrypted, ensuring the privacy and security of all financial information. The third-party website prompts policyholders step-by-step through the online audit process. Supporting documentation, such as pdfs of tax records and eCertificates of Insurance, may be uploaded securely through this website. The online audit process is designed to ensure confidentiality, accuracy, and ease of doing business with Chesapeake Employers’ Insurance.

If a policyholder does not have access to the internet to complete the mail audit online, he or she can contact the auditor assigned to his/her account for instructions on how to fax or mail this information to Chesapeake. Note that the online audit process is reserved for mail audits only. Our field audit staff will continue to conduct physical audits as needed.

Important: Policyholders should stop using any old IWIF or Chesapeake 2-page mail audit forms, as these forms can no longer be tracked electronically. The submission of any old forms can lead to a delayed or an unresponsive audit, both of which may lead to cancellation of the policy.

Q: How Should My Payroll Records Be Organized for an

A: Please have your payroll records organized as follows:

  • Policy term: Present records that reflect payroll for the policy term, beginning with the effective date of your policy.

  • Classification: List each type of job separately, i.e., clerical, sales, etc.

  • Jurisdiction: Record the geographical areas in which your employees worked.

  • Overtime: Record overtime paid to employees during the policy term.

Q: What is Payroll/Remuneration?

A: Payroll or remuneration means money or substitutes for money. Both payroll and remuneration records are requested during a premium audit.

Q: What is included in payroll?

A: Payroll includes:

  • Wages or salaries (including retroactive wages or salaries);

  • Total cash received by an employee for commissions and draws against commission;

  • Bonuses, including stock bonus plans;

  • Overtime wages paid at the regular rate of pay. Example:  If time and ½ is paid for overtime, then 1/3 (the half time portion) is excluded from total wages. If double time is paid for overtime, then ½ (the double time portion) is excluded from total wages.

  • Pay for holidays, vacation or periods of sickness;

  • Payment by an employer of amounts that would have been withheld from employees to meet statutory obligations for insurance or pension plans such as the Federal Social Security Act or Medicare;

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

  • Payment or allowances for hand tools or hand-held power tools used by employees in their work or operations for the insured. These tools may be supplied directly by the employee or to the employee through a third party.

  • The rental value of an apartment or house provided to an employee based on comparable accommodations;

  • Value of lodging, other than apartment or house received by an employee as part of his/her pay, to the extent shown in the insured's records;

  • Value of meals received by employees as part of their pay to the extent shown in the insured's records;

  • Value of store certificates, merchandise, credits or any other substitute for money received by employees as part of their pay;

  • Payments for salary reduction, employee savings plans, or retirement or cafeteria plans (IRC 125) that are made through employee-authorized salary reduction from the employee's gross pay;

  • Annuity plans;

  • Expense reimbursement to employees to the extent that an employer's records do not confirm that the expense was incurred as a valid business expense;

Exception: When it can be verified that the employee was away from home overnight on the business of the employer, but the employer did not maintain verifiable receipts for incurred expenses, a reasonable expense allowance, limited to a maximum of $30 per day, is permitted.

  • Davis-Bacon wages or wages from a similar prevailing wage law;

  • Payment for filming of commercials excluding subsequent residuals that are earned by the commercial's participant(s) each time the commercial appears in print or is broadcast.

Q: What is not included in payroll?

A: Payroll excludes:

  • Tips or other gratuities received by employees;

  • Payments by an employer to group insurance or group pension plans for employees;

  • Payments by an employer into third-party trusts for Davis-Bacon Act or a similar prevailing wage law, provided the pension trust is qualified under IRC Sections 401(a) and 501(a);

  • Value of special rewards for individual invention or discovery;

  • Dismissal or severance payments except for time worked or vacation accrued;

  • Payments for active military duty;

  • Employee discounts on goods purchased from employee's employer;

  • Expense reimbursements to employees to the extent that an employer's records confirm that the expense was incurred as a valid business expense.

Reimbursed expenses and flat expense allowances (except for hand tools or hand-held power tools) paid to employees may be excluded from the audit only if all three of the following conditions are met:

  • The expenses are incurred for the business of the employer;

  • The amount of each employee's expense payments or allowances are shown separately in the records of the employer; and

  • The amount of each employee's expense reimbursement is a fair estimate of the actual expenses incurred by the employee in the conduct of his/her work.

Note: When it can be verified that the employee was away from home overnight on the business of the employer, but the employer did not maintain verifiable receipts for incurred expenses, a reasonable expense allowance, limited to a maximum of $30 per day, is permitted.

  • Supper money for late work;

  • Work uniform allowances;

  • Sick pay paid to an employee by a third party such as an insured's group insurance carrier that is paying disability income benefits to a disabled employee.

  • Employer-provided perks, such as:

    • use of company provided autos, airplane flights, incentive vacations (e.g., contest winners), discounts on property or services, club memberships, tickets to entertainment events; and

  • Employer contributions to employee benefit plans, such as:

    • Employee savings plans

    • Retirement plans

    • Cafeteria plans (IRC 125)

These include contributions made by the employer, at the employer's expense, which are determined by the amount contributed by the employee.

Q: What If My Employees Work in More than One

A: In general, Chesapeake Employers assigns one basic classification that best describes your business. However, some employees who perform 100% of their work under a standard exception classification, such as office clerical or outside sales, can be separately rated. In addition, employees who perform driving duties may potentially have their wages split between the standard exception driving classification and the basic classification assigned to the business.

Note: Some classifications specifically include the standard exceptions, i.e., clerical, sales, and/or drivers. In these cases, the specific standard exception cannot be separately rated.

In the construction industry, Chesapeake Employers allows a breakout for payroll between the various trades associated with the specific job. For example, a commercial construction contractor may qualify to break out payroll between framing, drywall, and plumbing. The breakout must be verifiable and traceable to the company sales documents, contracts, and payroll records, such as timecards and job cost records. Percentage breakdowns are not allowed.

It is the policyholder's responsibility to keep detailed and summary payroll records on a time and dollar basis, and to be sure that the hours and wages in each classification are accurately noted. This method requires additional recordkeeping but is advantageous, as all payroll is not charged to the higher rated classification. In either case, these records should be kept for auditing purposes. If the policyholder does not maintain a payroll breakout, the Chesapeake Employers’ auditor will assign all earnings to the higher rated classification.

(Revised 7/21/17)

Q: When are Premiums Charged for Subcontractors?

A: Under the Maryland Workers’ Compensation law, the principal contractor is liable for injuries to an uninsured subcontractor and the employees of the subcontractor. Premiums will be charged if a Certificate of Insurance showing proof of workers’ compensation coverage for the period worked is not provided.

Q: How is a Subcontractor's Payroll Handled?

A: If you hire a subcontractor who does not have workers' compensation insurance (or is not deemed to be an independent contractor), you will be assessed premium based on the amounts paid to the subcontractor.

The amounts assessed will not be less than:

  • 50% of the contract price when the contract specifically requires the subcontractor to provide all the material and labor to complete the entire job;

  • 100% of the contract price where labor only is provided;

  • 33-1/3% of the contract price where mobile equipment with operators is provided;

  • 100% of the amount paid to the subcontractor will be considered as labor if no contract is provided.

If a subcontractor claims to be insured, get an original version of the workers' compensation Certificate of Insurance. A written statement from the subcontractor is not adequate proof of coverage. Keep original Certificates of Insurance (not photocopies) on file as we will review them during the audit. Be sure that the period of coverage on the certificate matches the period when the work was performed, as closely as possible.

Q: What is the “Sole Proprietor’s Status as a Covered
      Employee” form?

        (Rev. 12/2015)

A: The Sole Proprietor’s Status as a Covered Employee form is provided by the Maryland Workers’ Compensation Commission (WCC). This form allows an independent contractor operating as a sole proprietor to make a selection as to whether he/she wants to be covered under the Maryland Workers’ Compensation law. Chesapeake Employers reserves the right to assess premium at audit for any independent contractor(s) not properly excluded from coverage by this form.

Q: What are the Guidelines for Validating Independent
      Contractor vs. Employee Status?

        (Rev. Jan. 2017)

A: Important Change to Maryland Work Comp Law: Legislation passed during the 2012 General Assembly session amended the Maryland Workplace Fraud Act of 2009, changing the presumption that all workers are categorized as "employees" and not "independent contractors." The law now allows a business owner in Maryland to rebut the presumption that an employer-employee relationship exists whenever a payment is made for services performed by allowing the employer to produce documents in support of an independent contractor relationship. In Maryland, the burden still rests with the employer to prove independent contractor status.

Chesapeake Employers recommends that you, as the hiring contractor, gather and retain the following documents for each individual presented as an independent contractor:

  • Certificate of insurance for general liability coverage;

  • A copy of the independent contractor's business license;

  • Written subcontract in place for each job conducted by the individual contract laborer, per Title 9-508 of the Maryland Workers' Compensation statute; and

  • A signed copy of the Sole Proprietor’s Status as a Covered Employee form (MD WCC Form IC-02 (01/2010)).

Even if all four items are provided, the individual in question could still be considered an uninsured subcontractor if he or she performs work that is normally considered a "crew" activity (for example, framing, siding, roofing, drywall, or concrete work).

Note: If you answer "yes" to any of the following questions, the individual contract laborer is most likely an employee:

  • Is the person paid hourly (or by the piece, day, or week)?

  • Does the person perform work that regular employees of your business perform?

  • Is all (or a majority) of the work that is the general nature of your business performed by contract labor?

  • Do you provide the material for the job(s)?

In all cases, if the individual/contractor (without workers' compensation coverage) in question hires labor to help perform the work, the individual would be considered an uninsured contractor and the amounts he or she was paid would rightfully be included with payroll/wages on your audit.

See also: Guidelines: Employee or Independent Contractor or Sole Proprietor or Subcontractor(chart)

For more information on worker classification, go to the Maryland Department of Labor, Licensing and Regulation’s website at:

Q: What are the Guidelines for Excluding Hired Outside

        (Rev. Oct. 1, 2013)

A: If you have hired or plan to hire a trucking company to perform services for your business, the amounts paid to them may be included on your workers' compensation audit. In order to support the position that the truckers are independent contractors and not employees, Chesapeake Employers requires the following documentation to allow the amounts paid to them to be excluded from the payroll that is included on your workers' compensation audit.

If the trucker has workers:

The trucker must furnish you with proof of workers’ compensation insurance before the service is performed. Note: A binder number is not proof that a workers’ compensation policy has been obtained. Verification of actual Maryland coverage in place can be confirmed through the WCC’s website at

If you are a licensed motor carrier that is hiring truckers that do not have any workers, you may enter into an agreement with the truckers in accordance with
Title 9-218, whereby:

  • There is a written permanent agreement or trip lease in place for each specific trucker;

  • The agreement reflects no intent to create an employer-employee relationship; and

  • The agreement indicates that the trucker will be paid rental commission.

  • For federal tax purposes, the individual qualifies as an independent contractor.


  • If the hired trucker sublets any portion of his or her work from your company to another trucker, then the trucker directly hired by your company would be required to carry his or her own workers' compensation policy and provide proof of such coverage.

Note: A binder number is not proof that a workers' compensation policy has been obtained. Verification of actual Maryland coverage can be confirmed through the WCC at

Chesapeake Employers may also employ additional resources to verify that the hired trucker is an "Independent Contractor." This may include, but is not limited to:

  • SAFER – Federal Motor Carrier Safety Administration Database

  • Dun & Bradstreet – U.S. Business Credit Information

  • LexisNexis – International Database

  • State Fuel Tax Reports – All States

If, upon review of other resources, it appears that the trucker in question has any type of workers, they may be included in the payroll upon which your audit is based.

Q: What about Reporting Other States’ Coverage and
      Wrap-up Agreements on Mail Audits?

A: Situations that may require additional instructions include Other States’ Coverage and Wrap-up      Agreements.

  • Other States’ Coverage

    Chesapeake Employers may issue a separate policy for coverage in other states. If your policy has Other States Coverage, the Premium Audit Report for mail audits will list “Other States’ Coverage” in the Employee Payroll Detail section. Indicate the total payroll amount for the other states’ employees in this section.

Some policies have coverage in more than one state outside of Maryland. If this is the case, list each state and the payroll amount for that state in the “Other Comments” section of the Premium Audit Report.

List the payroll amounts in each classification if your out-of-state policy has more than one classification.

Send in your Maryland Unemployment Reports, the Unemployment Reports for the other states listed on the policy, and your 941 forms.

If your company performs construction work, please call Chesapeake Employers’ Customer Service Call Center at 410-494-2000, extension 336 (Audit Department) to discuss special reporting rules that apply to construction accounts with out of state policies.

  • Wrap-up Agreements

A Wrap-up Agreement occurs when another company provides the insurance for workers’ compensation coverage for a specific construction job and location.

List the wrap-up payroll amount on the “Other Adjustments” line in the Total Payroll Information section. Do not include the wrap-up payroll in the Employee Payroll Detail section.
The following documentation needs to be sent in with the audit report:

  • Certified payroll sheets;

  • A declaration page showing the job location, policy period, and your company as a listed insured under the Wrap-up Agreement.

Q: When Obtaining Certificates of Insurance from

        (updated Oct. 2011)

A: Ensure that the certificate came directly from the producer or insurer. This will:

  • Allow the certificate holder to potentially receive a notice of cancellation if in fact the policy were to be cancelled. (Note: Maryland law does not require that a "Notice of Cancellation" be mailed to a certificate holder, although some insurers will issue this as a matter of courtesy.)

  • Prevent anyone from altering the policy information reflected on the certificate. 

  • Ensure that the policy provides coverage in Maryland or wherever the subcontractor is in fact working. The contractor can specify that the coverage information be reflected on the certificate.

  • Ensure that the insured named on the certificate is in fact the business or individual that the contractor is making payment to. For example, if the contractor is paying "John Doe," the contractor must verify that "John Doe" is the name listed as the insured party on the certificate.

  • Ensure that the number listed on the certificate under “policy number” is in fact a policy number and not a “binder number.” A binder number reflects the named insured's intent to purchase a policy. However, if payment is not made in a timely manner, or if the check made for deposit bounces, the policy never actually goes into effect. If coverage is actually bound, the policy will show up on the WCC's website,, within three days of the policy in-force date.

Additionally, if the certificate indicates that the named insured has a non-Maryland address, the contractor needs to confirm in writing through the agent or insurer that the jurisdiction is actually covered under the policy. For example, some policies are state-specific; i.e., Virginia residents cannot always obtain coverage in Virginia that extends into Maryland.

Please note that you, the contractor, have the ability to review and check all certificates of insurance issued within the State of Maryland which reflect coverage for workers' compensation. You may do this online at the WCC’s website, Access the Search feature under the "Public Online Services" tab and then go to "Employer Coverage Verification." As stated, if coverage is actually bound, the policy will appear on the Maryland WCC website within three days of the policy's in-force date.

Q: What If I Disagree with the Results of My Premium Audit?

A: If you do not agree with our audit and would like to contest it, please review the following requirements and provide the necessary supporting documentation, within 30 days of the audit invoice date. Disputes with supporting documentation received within 30 days of the audit invoice date will generally be resolved within 14 days of receipt of the required records. If the dispute and required documentation are not received within 30 days, we will presume you are in agreement with our audit. (Click on any of the following tabs for additional information or print the Premium Audit Dispute Requirements form.)

Q: Employee Classification

A: If classification of employees is being disputed, all of the following is required:

  • Employees’ name(s)

  • Job titles

  • Description of job functions

  • Detailed wages of the employees in question

  • Supporting documentation for the employees’ wages

Q: Uninsured Subcontractors or Laborers

A: If the inclusion of uninsured subcontractors or laborers is being disputed, all of the following is required:

  • Subcontractor’s/laborer’s name

  • All available documentation for those subcontractors/laborers

  • Certificates of Worker’s Compensation insurance

  • Certificates of General Liability Insurance

  • Copy of contractor’s business license

  • Written subcontract in place for each job conducted by the subcontractor

A signed copy of the Sole Proprietor’s Status as a Covered Employee Form

Q: Outside Truckers?

A: If the inclusion of outside truckers is being disputed, copies of all of the following are required:

  • Permanent or Trip Lease Agreement for each specific trucker

  • Agreement that reflects the payment of rental commission

  • Agreement that reflects there is no intent to create an employer-employee relationship

  • Federal tax return and all related schedules for the most recent calendar year that support the position of “Independent Contractor”

Note: If the trucker in question owns multiple trucks and has employees or uses outside labor to drive those trucks, they are required to carry Workers Compensation coverage.


If the classification(s) assigned to a particular exposure is being disputed, all of the following is required:

  • Narrative explanation of the dispute

  • If a construction risk, detailed job cost payroll for the exposure in dispute and contracts to support the payrolls in question.


If any other basis for your dispute, all of the following is required:

  • Detailed explanation

  • Supporting payroll

  • Contract information (if a construction risk and applicable)

Q:Where do I send my audit question(s) and supporting

A: Send letter and necessary supporting documentation to:

Audit Dispute Resolution
Chesapeake Employers' Insurance Company
8722 Loch Raven Blvd., Towson, MD 21286

or fax to: 410-494-2497

Upon receipt of the dispute, we will send an acknowledgement to you and to your agent, if applicable.

As a reminder, even if a dispute has been filed, payment for the current term’s premium must continue to be paid in order to maintain coverage and prevent cancellation.

Important information:

Please note that the result of your audit will be summarized on the “Chesapeake Employers’ Policy Audit Summary Notification,” which will be mailed to you following your actual audit.

In the event you wish to dispute the results of this audit, you must provide the necessary information within 30 days of the date of the Chesapeake Employers’ Policy Audit Summary Notification. Detailed instructions and an explanation of the dispute procedures will be included with the Chesapeake Employers’ Policy Audit Summary Notification.

We appreciate your business and thank you for working with us to complete the audit process in a timely and cooperative manner. If you have any questions, please contact Chesapeake Employers’ Contact Center at 410-494-2000, ext. 336 (or toll-free 1-800-264-4943, ext. 336).

30 Days graphic

Q: What records may be needed for a premium audit?

A: To assist you in gathering the necessary records for your premium audit, please refer to this checklist. Please make available all records for the policy term being audited. For a preliminary audit, please provide records from the previous calendar year, or, if the business is fewer than nine months old, from the inception of the business.

Your Premium Audit Checklist:

    • Description of the business operation(s)

    • List of business location(s)

    • Payroll Records

    • Payroll Breakdowns by state and classification

    • Overtime payroll breakdowns by state and classification

    • Individual Earnings Cards / Reports

    • 941s and Form 940

    • W-2s and Form W-3

    • Profit and Loss Statement

    • Cash Disbursements

    • Certified Payrolls on OCIP / CCIP jobs

    • Sales Journal / Cash Receipts

    • Certificates of Insurance for Subcontractors

    • List of Officers and their responsibilities

    • Clerical Employees and their job duties

    • 1099s and Form 1096

    • Job Cost Records, Contracts, and Invoices

    • General Ledger and Check Register

    • Federal Income Tax Return

    • Maryland Quarterly Unemployment Reports

    • Quarterly Fuel Tax Reports

Q: Questions?

A: Call us! If you have any questions concerning your premium audit, please contact the Chesapeake Employers’ Contact Center at 1-800-264-4943, ext.336. 

Local phone: (410)-494-2000, ext. 336
Toll-free: 1-800-264-4943, ext. 336
Fax: 410-494-2497


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