What it means
Workers compensation premium is first calculated from estimated payroll for each classification. After the policy ends, the insurer audits actual payroll, often through records, a questionnaire or an auditor visit.
If actual payroll was higher or the work fell into higher rated classifications, the business owes additional premium. If it was lower, the business may receive a return premium, subject to policy minimums.
Audits also review subcontractor payments. Payments to subcontractors without valid workers compensation coverage can be added to payroll, which is one of the most common surprises for contractors.
An example
Seabright Painting estimated 400,000 of payroll at the start of the year but grew faster than expected. The audit finds 560,000 of actual payroll, so Seabright receives an additional premium bill for the 160,000 difference at its classification rate.
Names in this example are fictional.
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How do I prepare for a workers compensation audit?
Keep payroll reports by employee and job duty, overtime records, and certificates of insurance for every subcontractor paid during the year. Separate clerical and field payroll where roles differ. Have the documents ready before the auditor contacts you. Clean records help ensure each employee is classified correctly and avoid unnecessary charges.
What happens if I ignore a premium audit?
Insurers may charge an estimated audit premium, often higher than the actual exposure, and may cancel or decline to renew the policy. An unresolved audit can also make it harder to obtain coverage elsewhere. Respond promptly, and ask the auditor which records are needed if the request is unclear.
General information only. It is not legal or insurance advice. Only issued policy documents and endorsements describe actual coverage.