Surviving the
workers' comp audit.

Why the audit exists

Your workers' comp premium is a deposit, not a price. At the start of the policy year the carrier estimates your payroll by type of work, charges a rate per $100 of payroll for each classification, and bills you on the estimate. After the year ends, the premium audit compares the estimate to what actually happened. Payroll higher than estimated — or shifted into more expensive class codes — and you owe more. Lower, and you get money back.

For most businesses the audit is a formality. For contractors it's high-stakes, for two reasons: construction class codes carry some of the widest rate spreads of any industry (a clerical employee might rate under $1 per $100 of payroll while roofing runs $20+), and construction is full of the auditor's favorite finding — uninsured subcontractors.

What the auditor actually looks at

• Payroll records by employee and class code — payroll registers, quarterly 941s, state unemployment filings. The auditor reconciles them against each other; gaps between what payroll says and what the tax filings say are where audits go sideways.
• Job duties, not job titles. Classification follows what people actually do. An "office manager" who spends two days a week running materials to job sites can get reclassified — at field rates.
• Overtime detail. In most states, the premium portion of overtime (the extra half-time) is excluded from auditable payroll — but only if your records show overtime separately. Lumped-together payroll gets charged at the full amount.
• Subcontractor payments and certificates of insurance. The big one — see below.
• Owner/officer treatment. Owners and officers can often be excluded or are subject to minimum/maximum payroll amounts, depending on your state and elections on file. Wrong paperwork here swings real dollars.
• Cash disbursements and 1099s — to catch labor paid outside payroll entirely.

The uninsured sub problem

Here's the rule that surprises contractors every year: if you paid a subcontractor who can't produce a valid certificate of insurance showing their own workers' comp coverage for your policy period, the auditor adds their payments to your payroll — and charges you premium on it at the class-code rate for their trade.

One missing certificate can add thousands of dollars of premium — for coverage you never intended to buy.

The fix is boring and completely effective: collect a current COI before a sub's first check, and don't release payment without one. Track expiration dates — a certificate that lapsed mid-year only protects you for the covered portion.

How to walk in prepared

1. Reconcile payroll to your tax filings before the auditor does. Payroll register totals should tie to your 941s and state filings for the policy period. If they don't, find out why first.
2. Split payroll by class code — and where employees genuinely split time between classes, keep the records that support the split. Without records, everything defaults to the most expensive code that applies.
3. Show overtime separately so the excludable premium portion actually gets excluded.
4. Build the sub folder: every subcontractor paid during the period, amounts, and a COI covering the dates you paid them.
5. Have the officer paperwork handy — exclusion elections and ownership information.
6. Answer what's asked, provide what's requested. An organized package that ties out gets a fast, clean audit. A shoebox gets an auditor with time to dig.

After the audit

Read the audit statement before paying it — carriers make mistakes too. Check that class codes match what your people actually do, that overtime premium was excluded, that subs with valid COIs weren't picked up, and that officer rules were applied. You typically have a limited window to dispute an audit, and your insurance agent is your ally here: auditors revise findings when you can document the error. That last word matters — documentation, not argument, is what wins disputes.