Why did my restaurant get a premium audit bill?
Because the policy was charged on estimates and the year came in higher. General liability is usually priced on sales, liquor liability on alcohol sales and workers' comp on payroll. At renewal each one is estimated for the year ahead; after the policy ends, the carrier's auditor collects the real figures and bills or credits the difference, usually 60 to 90 days later. A price increase, a round of raises or a new location during the year all show up there.
How the premium audit works
The premium on these lines is a rate times a base. The rate comes from the carrier and depends on the class, the location, the claims history and how much the carrier wants the account. The base is the business's own number: sales per thousand dollars for general liability, alcohol sales for liquor liability, payroll per hundred dollars by job class for workers' comp. The deposit premium is the rate times the estimate. The premium audit replaces the estimate with the real figure, from the sales reports, the payroll records and the tax filings, and the difference becomes a bill or a credit.
The estimate is usually last year's number rolled forward. That is how renewals work, and it is not a mistake. It does mean that anything that raised sales or payroll during the year, and was not in the estimate, gets billed after the fact.
Why this year's is bigger
Menu prices rose 3.5 percent in the year to September, 3.8 percent at full service and 3.2 percent at limited service, and hourly wages rose 3 percent, according to the federal data Restaurant Business reported on 14 October. Both go straight into the base. A group whose renewal estimated last year's sales and payroll will usually see those increases at the premium audit, even in a year with fewer guests: quick-service sales rose 0.6 percent in the third quarter while guest counts fell 2.6 percent. Liability is priced on dollars, not on the number of people through the door.
Put it on a six-store program paying $30,000 for general liability, $15,000 for liquor and $40,000 for workers' comp. Sales up 3.5 percent adds about $1,050 on general liability at the premium audit; payroll up 3 percent adds about $1,200 on workers' comp; liquor adds about $500 if drink prices rose with the food and nothing if alcohol sales held flat. That is an illustration, not anyone's program, and a store opened mid-year adds more.
How to plan for it
Give the agent this year's numbers at renewal: sales and payroll by store, with the price increases already taken and the ones planned. That is the twelve-month conversation a renewal should start with, and it keeps the deposit close to the real number. When comparing quotes, check that each one used the same sales and payroll; a quote built on a lower estimate has a smaller deposit, and the premium audit collects the rest. Some carriers offer pay-as-you-go workers' comp, which calculates the premium from each payroll run so the premium audit has little left to collect. And in most states tips come out of workers' comp payroll when the payroll records show them separately: Are tips included in workers' comp payroll?
The premium audit can return money too. A store that closed, a slower year at one location or lower alcohol sales brings the base down, and the difference comes back as a credit. One of the ten questions on the insurance check is exactly this: does the audit bill surprise you every year? When the renewal itself starts matters as much as what goes into it: When should a restaurant group shop its insurance?