Overview
A workers' compensation audit reconciles actual payroll and job classifications against the estimates used to calculate premium. Carried out at the end of the policy year, the review ensures the insured pays the correct premium and that the carrier has accurate exposure information.
Key takeaways
- Choose an annual reporting period that matches existing payroll and tax records.
- Keep separate payroll records by classification and track subcontractors with Certificates of Insurance.
- Document overtime and split hours when employees perform multiple job duties.
How it works
Insurers compare reported payroll to the payroll actually paid during the policy year and adjust premium accordingly. To make this process simple, pick a policy-year period that already matches your bookkeeping, such as the calendar year or a fiscal quarter.
If you need guidance on audit procedures and employee coverage specifics, see Workers' Compensation Audit and Employee Coverage for more detailed explanations.
What it may cover (and what it may not)
A typical audit examines total payroll, job classifications, subcontractor usage, and any pay components that affect premium like overtime. It does not usually change coverage types or retroactive benefits; instead, it recalculates premium to reflect actual payroll and work performed.
Audit adjustments may increase or decrease premium depending on differences between estimated and actual payroll and how labor was classified during the year.
Common mistakes to avoid
Mixing payroll for different classifications in the same record can lead to higher charges; segregate clerical, sales, drivers, and manual labor payroll by employee and by pay period. When an employee performs multiple tasks—such as a carpenter helping pour concrete—track hours by task so higher-rated hours are not over-applied.
Failing to collect and keep Certificates of Insurance (COIs) for subcontractors is another frequent issue; without a COI, carriers may attribute subcontractor payroll to your company. Also, do not forget to isolate overtime pay because overtime often receives a favorable premium adjustment.
Questions to ask an agent
Which policy-year period will make the audit easiest given our current payroll and tax reporting? Ask for a recommended period that matches your existing records.
How should subcontractor payments be documented to maximize any eligible premium credits? Bring COIs and payment records to clarify which workers are independent contractors versus employees.
If you want a direct review, consider whether to talk to an agent who can explain audit expectations and suggest recordkeeping changes before the audit.
Next steps
Start by selecting a consistent policy period aligned with your payroll reports and set up simple templates to record hours by classification. Keep separate payroll ledgers for each class, document subcontractor COIs, and note any payments to non-covered contractors so your auditor can apply appropriate credits.
For contractor-specific guidance and coverage options, review resources such as Contractors Workers Compensation to ensure your recordkeeping aligns with industry expectations.
With modest recordkeeping changes you can reduce surprises at audit time and ensure premiums reflect actual exposure rather than estimates.
Frequently Asked Questions
What records should I keep for a workers' compensation audit?
Keep payroll registers, timesheets showing hours by job classification, COIs for subcontractors, and documentation of payments to non-covered contractors.
How does overtime affect premium?
Overtime is often adjusted differently than straight-time pay and can receive a premium discount, so isolate overtime pay in your records.
What if a worker performs multiple job duties?
Track hours by task and assign payroll to the correct classification based on the work performed during each hour.
Can subcontractor payroll be excluded from my audit?
Yes, if you collect and retain valid COIs showing subcontractors carry their own workers' compensation, their payroll can typically be excluded.