Why does my general liability policy get audited on my sales?

What this means for you

• Receipts move faster than payroll, which is why this catches food and retail hardest. A restaurant can add thirty percent to its revenue in a year without hiring anyone. The workers compensation estimate stays roughly right while the general liability estimate goes badly stale, and only one of them is producing a bill.
• Check whether it is gross or net. Some policies rate on gross receipts and some allow deductions: sales tax, returns, and in some classes excise duty. On a bar, whether alcohol tax sits inside the audited figure is worth knowing before you report a number rather than after.
• Subcontractor costs are often rated separately, and uninsured ones are typically rated at your own rate as though the work were yours. On a contractor policy this line is frequently larger than the growth in receipts.
• The classification has to match the real mix. A restaurant that has become a bar in practice, or a retailer that has started installing what it sells, is being rated for a business it no longer is. The audit applies the correct classification to real figures, and the difference lands in one bill.
• Report the figure from your accounts. Point-of-sale and accounting exports take minutes and are what the auditor will reconcile against anyway. An estimate from memory is how a gap opens quietly across several years.
• If you are also audited on workers compensation, prepare once. The two audits want overlapping records and often arrive within weeks of each other. Assembling payroll, tax filings, subcontractor certificates and receipts as one exercise is much less work than doing it twice.

Related questions

My sales went up but my risk did not really. Does that matter?

It matters at renewal rather than at audit. The audit applies the rating basis in the policy you bought, so higher receipts produce higher premium regardless of how the extra revenue arose. What can be argued — with evidence, at renewal — is the classification and the rate: revenue from a genuinely lower-hazard activity may belong in a different class rather than in the one carrying your whole turnover.

We are a restaurant whose bar has grown. What should we watch?

Two things at once. The alcohol share of receipts decides whether you are still rated as a restaurant, and crossing roughly half tends to reclassify you regardless of the kitchen. And the liquor liability policy is separately rated on that same alcohol figure, so the drinks are counted in both places — your general liability rates on total receipts, which already include them, and liquor liability rates again on the alcohol portion.

What the alcohol share changes

How far back can they audit?

The audit covers the policy period just ended, but carriers can and do reopen a prior period where records later show the figures were wrong, and if several years were estimated from the same stale application, more than one term may be revisited. The worst version takes that shape: not one large bill, but several, discovered together.

Why estimates go stale, and whose job that is