For many contractors, the workers comp audit is the most unpleasant surprise of the year. It does not have to be. The bill comes from a few specific, reviewable things.
How the audit works
Workers comp premium starts as an estimate based on projected payroll and class codes. At the end of the policy term, the carrier audits your actual figures: payroll by classification, and how subcontractors were handled. If actual payroll is higher than estimated, or classified into higher-rated codes, the premium rises. The audit is a true-up, not a penalty, but it can produce a real bill.
What drives surprise bills
Three things, mostly. Payroll misclassified into a higher-rated code, or field labor allocated to the wrong trade, inflates the premium. Owner or executive payroll that should be capped or excluded, but was not, adds cost. And uninsured subcontractors, whose own coverage you could not verify, get their payroll charged to your policy. Each is preventable.
How to prepare
Keep clean payroll records broken out by classification, and separate subcontracted labor from your own. Collect and verify each subcontractor’s workers comp certificate before they start, and keep it current. Know how owners and officers are treated in your state. When the audit worksheet arrives, review it against what actually happened before accepting it.
If it is wrong
Audits can be disputed when class codes or payroll were applied incorrectly. The case rests on documentation: accurate payroll records and verified subcontractor coverage. An audit review checks the worksheet against your real operations and helps you correct an overcharge.
The cleanest audit is the one you set up for all year: right codes, honest payroll, verified subs.