Updated 2026-11-01
Most workers compensation policies are priced on estimated payroll. When the policy period ends, the insurer checks what you actually paid and recalculates the premium. That review is the premium audit. If payroll was higher than estimated, you receive a bill; if it was lower, you receive a refund or credit.
Types of audits
- Voluntary or mail audit: you complete a form and send records. Common for small, low-hazard policies.
- Phone or virtual audit: an auditor reviews records with you on a call or screen share.
- Physical audit: an auditor visits your location. More common for larger or higher-hazard policies.
What the auditor looks at
The auditor confirms gross payroll for the policy period and how it splits across class codes. They review payroll registers, quarterly payroll tax filings, general ledger entries for labor, and payments to subcontractors or casual labor. They also check whether owners and officers are included or excluded as elected on the policy.
Payments to subcontractors are a frequent source of extra premium. If a subcontractor did not carry its own workers comp during the time it worked for you, many insurers add those payments to your payroll at the rate for the work performed.
How to prepare
- Keep a copy of your policy declarations and know which class codes are listed.
- Pull payroll reports for the exact policy dates, not the calendar year.
- Separate overtime premium pay if your state allows it to be excluded; ask your agent.
- Gather certificates of insurance for every subcontractor, with dates that cover the work.
- Document duties for employees who split time between classifications, where allowed.
- Respond by the deadline. An incomplete audit can result in an estimated charge.
Avoiding a surprise bill
The simplest step is to tell your insurer when payroll changes significantly during the year, for example after a big hire or a new contract. Pay-as-you-go billing, where premium is calculated from each payroll run, also keeps the audit adjustment small because premium tracks actual payroll throughout the year.
If you disagree with an audit result, ask for the auditor's worksheet and discuss it with your agent. Insurers have dispute procedures, and many states provide a formal process for disagreements about classification or payroll.
Audit issues by industry
What auditors focus on depends on the business. Contractors should expect questions about subcontractor certificates, retail stores about seasonal staff and part-time payroll, and small businesses about owner payroll and whether officers are included or excluded. State rules on owner inclusion vary; see the workers comp by state page.