A workers' compensation premium audit is a year-end review in which your insurer reconciles the estimated payroll used to price your policy against your actual payroll and class codes, then issues a final premium — either an additional charge or a refund.
Audits are routine, but they are where employers most often overpay: uncaptured overtime rules, misapplied class codes, and undocumented subcontractors can all inflate the final bill. Preparation is the difference between a clean audit and a surprise invoice.
How to prepare for a workers' comp audit
- Gather your payroll records. Pull gross wages by employee and by class code for the full policy period, plus quarterly tax filings (DE 9 in California) to reconcile against.
- Separate overtime premium. In most states the extra third of overtime pay is excluded from the audit basis. If overtime isn't broken out, you may be charged comp on it.
- Confirm your class codes. Make sure each employee is assigned to the correct code. Clerical and outside-sales staff carry far lower rates than field labor — misclassification is a common overcharge.
- Document subcontractors. Collect certificates of insurance for every sub. Uninsured subs can be added to your payroll basis, so missing certificates cost real money.
- Exclude what's excludable. Depending on the state, tips, severance, and certain reimbursements may be excluded from payroll. Know your state's rules.
- Reconcile before the auditor arrives. Your reported figures should tie to payroll registers and tax filings. Discrepancies invite a higher assessment.
- Have your broker review the findings. Never sign the audit worksheet without a second set of eyes. Errors are correctable through a dispute, but far easier to catch before the premium is billed.
What auditors actually check
| Item | Why it matters | Common overcharge |
|---|---|---|
| Payroll by class code | Sets the premium basis | Field rate applied to clerical staff |
| Overtime records | Excess OT often excludable | Full OT included in basis |
| Subcontractor COIs | Uninsured subs get added | Missing certificates = added payroll |
| Owner/officer payroll | Often capped or excludable | Uncapped owner wages |
| Cash payroll / 1099s | May be reclassified as employees | Reclassification adds premium |
What to do if the audit is wrong
If your final premium looks too high, you have the right to dispute the audit. Request the auditor's worksheet, identify the specific line — usually a class code or an overtime figure — and submit documentation supporting the correction. This is far easier when your broker is involved from the start, which is why an audit-defense relationship, not just a low quote, is what protects your bottom line.