If you run a contracting business in Walton, Okaloosa, or Bay County and you carry general liability or workers compensation, the premium you pay during the year is built on an estimate. Estimated payroll, estimated sales, estimated subcontractor costs. The premium audit after your policy year ends is simply the carrier checking those estimates against what actually happened. When the numbers were close, the audit is routine. When they were not, the audit produces a bill, and that bill catches a lot of good contractors off guard.
The most common surprise we see works like this. You paid a subcontractor during the year, and nobody collected a certificate of insurance from that sub covering the dates the work was done. At audit, the carrier has to treat that sub as if he were your employee, and the money you paid him gets charged at employee payroll rates instead of the much lower insured subcontractor rates. On general liability, carriers we represent commonly rate insured subcontractors at a small fraction of the employee payroll rate, so losing that credit on even one sub can move a bill in a way you feel.
None of this has to be a surprise. Below is how the process works, what the auditor is going to ask for, the certificate and exemption rules that decide most of the outcome, and what Florida law actually says when an audit gets skipped. We put this together after sitting in on a carrier audit webinar this summer and pairing what the audit managers told agents with the Florida statutes underneath it, because most of this information never reaches the contractor who actually gets the bill.
The audit statement is not a bill
When your policy expires or cancels, the audit process starts fairly quickly. Carriers we work with typically order the audit within about a week of expiration, and the request goes to you by email with a copy to us. That detail is worth pausing on. The carrier needs your correct email address on file, not just ours. If the carrier cannot reach you, the audit cannot be completed, and that leads somewhere you do not want to go. We cover that further down.
Once your records are in, the carrier produces an audit statement. The statement compares the exposure you estimated at the start of the year against what the auditor found. It does not show your payments, and it is not a demand for money. The invoice that follows is the bill.
The timing matters more than most people realize. On a large result, some carriers reach out to the insured and the agent before anything is invoiced, specifically so questions get answered early. Most disputes start when the invoice shows up, and by then the easiest window for sorting things out has already passed. Our suggestion is simple. Read the statement the week it arrives, and if a number does not match what you know about your year, give us a call. Carriers we work with generally allow about ten business days to submit documentation once a formal dispute is opened, with extensions available on request, so the earlier the paperwork starts moving, the better things tend to go.
The records your auditor will ask for
The core list is consistent across the carriers we represent:
- A payroll summary showing gross and overtime wages for the full policy period
- Your federal Form 941s and Florida RT-6 quarterly reemployment tax reports, which the auditor uses to reconcile the payroll summary
- A profit and loss statement showing material costs, total revenue, and subcontractor payments
- A subcontractor report listing each sub by name, amount paid, and the dates of the work
- 1099-NEC forms and contract labor payments
- Certificates of insurance for every subcontractor, valid for the dates they worked
- Workers compensation exemption certificates for anyone claiming one
On larger operations, the auditor may also want transaction detail, a cash disbursements journal, vendor invoices, or cancelled checks. Bank statements are the last resort, and auditors like working from them about as much as you like handing them over. If your operation is genuinely small, annual tax returns can sometimes carry the audit on their own, but once you are running real revenue, that stops working. An affordable bookkeeping system costs less than one messy audit, and we are glad to talk through what setup makes sense for your size.
One habit worth building: track overtime separately. When your records break out overtime, the premium portion of overtime pay, meaning the extra half in time and a half, is excluded from your workers compensation payroll. Without the breakout, the full amount counts.
On how long to keep everything, Florida’s reemployment tax rules require employers to keep payroll records for five years, and audit questions can reach back a long way. Our advice is to keep certificates, exemptions, and payroll records at least five years. Longer does not hurt.
Subcontractor certificates: where most audit surprises start
Florida law is direct on this point. Under Florida Statute 440.10, a contractor who sublets work is the statutory employer of an uninsured subcontractor’s workers, and the statute requires a contractor to obtain evidence of workers compensation coverage, or a valid exemption certificate, from a subcontractor before the work is performed. That is why uninsured sub payments show up on your audit as if they were your own payroll. It is not a carrier being difficult. It is how the statute assigns the risk.
For a subcontractor’s certificate to protect you at audit, carriers we represent generally look for two things. First, the sub’s liability limits need to be equal to or greater than yours. Most contractor general liability in our market is written at one million per occurrence and two million aggregate, so a sub carrying less can be treated as underinsured for your purposes. Second, you need to be named as an additional insured on the sub’s policy, and the certificate needs to show it. Being listed as the certificate holder alone is not enough. The certificate holder line just says who received the paper. The additional insured endorsement is the part that actually extends protection to you.
Here is the detail that saves people money, and very few contractors have heard it. The certificate only needs to be valid for the period the work was performed, not your entire policy year. If a framing crew was on your job in August, September, and October, a certificate covering those three months does the job. And if you can only produce certificates for part of the time a sub worked, you generally receive credit for the months you covered. Partial certificates are worth sending in. Every year we watch contractors leave money on the table because they assumed a partial certificate was worthless.
The same rule cuts the other direction on long jobs. Coastal projects run long. If a sub was on your project for fourteen months, the certificate has to be valid for all fourteen, and the one collected at kickoff does not cover the back half. A simple habit fixes both problems. Collect a current certificate when each sub starts, note the dates they are on the job, and ask for the renewal certificate when their policy rolls over.
Florida exemptions: the 10 percent rule and the three officer limit
Workers compensation exemptions generate more confusion than any other audit topic, partly because the rules genuinely differ from state to state, and even carrier webinars tend to speak in multi-state generalities. Here is how it works in Florida for the construction industry.
- An exemption is available to a corporate officer or an LLC member who owns at least 10 percent of the company and is listed as an officer or member in the Division of Corporations records at Sunbiz.
- No more than three officers of a corporation, or of any group of affiliated corporations and LLCs, may hold construction exemptions at one time.
- The election is filed online with the Division of Workers Compensation on Form DWC-250, the fee is $50, and the certificate is valid for two years. It takes effect when issued, not retroactively, and it has to be renewed.
- An exemption covers one named individual only. It is not a company-wide document.
- Sole proprietors and partners in the construction industry cannot elect an exemption at all. Under Florida law they are treated as employees, and the officer exemption path requires a corporation or an LLC.
- An exemption applies only to workers compensation. It does nothing on your general liability.
Two exemption problems come up at audit over and over. The first is the lapsed exemption. Certificates run on a two year cycle, and when one quietly expires mid-term, that person’s pay becomes billable exposure from the lapse date forward. The second is the exempt sub who is really a crew. An exemption belongs to one person, so when payments to a single exemption holder grow large enough that one person could not plausibly have done the work alone, auditors look harder. One admitted carrier we represent uses roughly $150,000 paid to a single exemption holder in a policy term as an internal review point, as of this summer. That is underwriting guidance rather than a rule, and it varies by carrier, but it tells you how the file gets read. If you are paying one exempt sub well into six figures, it is worth a conversation with us before the audit rather than after.
Where unseparated payroll really goes
There is a piece of folklore in the trades that says if your payroll is not broken out by class code, the auditor throws everything into the most expensive code on the policy. The real answer has two parts, and both are worth knowing.
For support payroll that does not belong to any single operation, think general supervision or a yard hand who touches everything, the rating rules assign it to the governing classification, which is the class code carrying the most payroll on your policy. Not the highest rated code. That part of the folklore is wrong in your favor.
For an individual employee who splits time between class codes, the rule is stricter, and this is the part that costs money. That employee’s wages can be divided between codes only when you kept verifiable records of the actual time spent in each type of work. Without those records, the rating rules assign that employee’s entire payroll to the highest rated classification that applies to the work he performed. So the carpenter who spends half his time on light punch work still rates entirely as a carpenter unless the time records exist to prove the split. In the construction classes, that record keeping standard is applied firmly.
The fix costs nothing. Set up payroll with a line per class code on day one of the policy term, and have workers who move between types of work record their hours by task. April is too late to reconstruct it.
What Florida law says about skipping the audit
This part is statute, not carrier policy, and it is worth knowing exactly.
Florida Statute 440.381 requires employers to give their carrier access to the records needed to complete a premium audit, and it puts real numbers behind that requirement. If an employer does not provide reasonable access to payroll records, the carrier is permitted to calculate premium at up to three times the most recent estimated annual premium. There is also a $500 charge payable to the carrier when the audit cannot be completed. And separately, an employer who understates or conceals payroll can be held liable for up to ten times the amount of the premium difference, plus the carrier’s attorney fees.
The same statute sets the audit schedule. Construction industry employers whose premium is large enough for experience rating are audited at least annually, and when the estimated annual premium is $10,000 or more, that annual audit has to be a physical onsite audit rather than a mail or phone audit. So if you have wondered why the auditor wants to come see you in person every year, that is a Florida statute, not your carrier picking on you.
Then there is the practical side, which is carrier and market practice rather than statute, and it is the part that really hurts. An ignored audit is marked non-compliant. Non-compliance is grounds for cancellation or non-renewal. The unresolved balance follows you, because the next carrier’s application asks whether you have been cancelled or non-renewed and why, and carriers are generally unwilling to pick up a contractor with an open audit balance sitting at the prior carrier. No policy means no certificate, and no certificate means no jobs. We have watched that sequence cost contractors a season.
The encouraging part is that it is usually fixable. Carriers we work with will generally reopen a non-compliant audit once the documentation shows up, and payment plans are typically available so coverage can be restored while the balance is worked out. When we ask an auditor to reopen a file, we ask once, with everything attached. Certificates, exemptions, payroll, all in one package. A reopen request loses credibility fast when documents trickle in one at a time, so we gather first and send second.
While we are on Florida law, one more statute belongs in this conversation. Under Florida Statute 440.107, working without required workers compensation coverage can bring a stop work order and a penalty of twice the premium that would have been paid, calculated over at least the preceding twelve months and up to two years where payroll was concealed or there is a prior violation, with a $1,000 minimum and an additional $1,000 per day for working in violation of the order. That is the statute that can turn a quietly lapsed exemption or an uninsured crew into a shutdown. It is a different problem than a premium audit, but the two meet in the same place, which is the records and certificates you keep during the year.
If the audit comes back higher than you expected
Two bills sometimes land close together, and the second one confuses everybody. The audit produces additional premium on the year that just ended. Around the same time, the carrier may endorse your current term upward to match the exposure the audit just found, on the theory that this year probably looks like last year. That is common carrier practice, and it can be a real squeeze on cash flow.
What most contractors never hear is that the second half of that is a conversation, not a verdict. If this year genuinely will not look like last year, maybe you lost a general contractor, cut a crew, or sold equipment, you can ask underwriting to adjust the current term estimate back down to something realistic. Carriers we represent are generally open to that conversation when the picture supports it. It is exactly the kind of call we make for our clients, and it happens far less often than it should, simply because nobody knew to ask.
One footnote on the rate environment. Florida regulators approved a statewide average workers compensation rate decrease of 6.9 percent for policies effective January 1, 2026, the ninth straight annual decrease. Rates are only half the math, though. Your audited payroll is the other half, which is why the record keeping in this article matters even in a falling rate market.
Wrap up projects need paperwork on day one
If you win work on a resort, condo, or public project covered by an owner controlled or contractor controlled insurance program, two things need to happen at the start, not at audit. First, the wrap enrollment packet needs to go to your carrier’s underwriting department at project inception. Your carrier may make different decisions about your policy if most of your exposure will sit inside the wrap, and that call has to be made early. Second, keep the wrap payroll segregated from your regular payroll from the first check. When the two are commingled, you can end up paying premium twice on the same labor and spending weeks unwinding it. One more habit worth the minute it takes: verify your own subs actually completed the wrap enrollment. Assuming a sub is enrolled and finding out otherwise at audit is a painful combination.
A note for Spanish speaking crews
A meaningful share of the trades on the Emerald Coast run Spanish speaking crews, and an audit is at bottom a paperwork conversation. At least one carrier we work with staffs Spanish speaking auditors and will assign one when asked, as long as the request is made before the audit is assigned out. If that would make the process easier for your office, mention it to us at renewal and we will make the request part of the file.
How we handle audits with our contractor clients
Our approach is not complicated. We tell you at binding that the policy is auditable and exactly what to collect, because the easiest audits are the ones prepared for all year. We send a reminder ahead of expiration so records get pulled while there is still time to find them. We keep the certificate conversation going during the year instead of in month thirteen. And when something goes sideways, we handle the reopen request, the documentation package, and the payment plan conversation with the carrier.
Two situations from our own files, with details removed, show why the habits matter.
A contractor came to us after being told elsewhere that his operation was hard to place. All of his labor was 1099, no certificates had ever been collected, and the audit on his expiring policy came back near five figures. Nearly all of it was avoidable, because the exemptions and certificates existed. They had simply never been gathered and never been sent in.
A local finishing trade renewed with a small refinement to how the operation was described. At audit, the reported exposure came back several times higher than the estimate, and the carrier moved to non-renew for a substantial change in the risk. The audit was not the problem. The estimate had drifted from reality over several years, and a correction that large is not just a bill. It becomes an underwriting decision about whether the carrier keeps the account.
That is the honest reason to take this seriously. An audit bill is money. An audit driven non-renewal is your ability to stay on the job.
Common questions about Florida contractor insurance audits
What is a premium audit, and why does my contractor policy get one?
Your general liability and workers compensation premiums are calculated at the start of the year from estimated payroll, sales, and subcontractor costs. The premium audit after the policy year compares those estimates to what actually happened, and the difference becomes additional or return premium. Workers compensation policies are auditable in Florida, including policies that cancelled mid-term, and contractor general liability policies carry an audit condition as well.
How many owners can be exempt from workers comp in Florida construction?
No more than three corporate officers or LLC members per corporation or affiliated group may hold construction industry exemptions at one time, and each must own at least 10 percent of the company and appear in Division of Corporations records. The election is filed online on Form DWC-250 with a $50 fee, and the certificate lasts two years before renewal. Sole proprietors and partners in construction cannot elect exemption at all.
What happens under Florida law if I ignore a premium audit?
Florida Statute 440.381 permits the carrier to charge premium of up to three times your most recent estimated annual premium when you do not provide reasonable access to payroll records, plus a $500 charge when the audit cannot be completed. Understating or concealing payroll can bring liability of up to ten times the premium difference plus attorney fees. On top of the statute, an ignored audit typically leads to cancellation and an open balance that blocks new coverage until it is resolved.
Does a subcontractor’s certificate of insurance have to cover my entire policy year?
No. The certificate needs to be valid for the dates the subcontractor actually performed work for you. If a sub worked three months, a certificate covering those three months is sufficient, and partial certificates generally earn credit for the months they cover. Send in whatever you have. On long projects the same rule means one certificate from kickoff will not cover a sub who stayed on the job past his own policy renewal.
If my payroll is not separated by class code, does it all go to the most expensive code?
Not exactly, and the real rule matters. Support payroll that belongs to no single operation goes to the governing classification, meaning the code with the most payroll. But an individual employee who splits time between codes can only have wages divided when verifiable time records exist. Without them, that employee’s entire payroll is assigned to the highest rated classification that applies to his work, which is why time records by task are worth keeping.
Is the audit statement the bill?
No. The audit statement shows the difference between your estimated exposure and the audited exposure, and it does not reflect payments already made. The invoice that follows is the bill. Reading the statement the week it arrives, and raising questions then, is the single easiest way to keep an audit disagreement small.
My policy cancelled for audit non-compliance. Can it be fixed?
Usually, yes. Carriers we work with will generally reopen a non-compliant audit when the documentation is provided, and payment arrangements are typically available so coverage can be restored while the balance is settled. Gather every certificate, exemption, and payroll record first and submit the complete package at once. Reopen requests carry the most weight the first time they are made.
Questions about your own audit?
If an audit request is sitting in your inbox, a bill came in that does not match your year, or a policy already cancelled and you need to get back on a job, call the office at 850-622-5283 and ask for Garrett Fuller. Fuller Insurance LLC, Florida license L039483. We write contractor insurance and general liability for the trades across Walton, Okaloosa, and Bay County, and we are glad to walk through any of this with you, whether or not your policies are with us today.
