A premium audit surprise happens because at the end of your policy year the carrier reviews your actual payroll and subcontractor use and trues up your premium against the estimate you started with. If payroll grew mid-year, your class codes were wrong, or your 1099 crews did not provide certificates, the true-up lands as a surprise bill. You avoid it by setting an accurate estimate at bind, tracking payroll, and collecting subcontractor certificates from day one.
What a premium audit actually is
Your workers comp and often your general liability premium start as an estimate based on projected payroll and revenue. At the end of the policy year, the carrier audits your actual figures and trues up the premium. If you earned or paid more than estimated, you owe the difference; if less, you may get money back. The surprise is not the audit itself, it is being unprepared for the true-up.
Why the bill shows up
Two culprits drive most surprise bills. First, payroll that grew mid-year, you added crew or hours and the premium was based on a lower estimate. Second, subcontractors who did not provide their own certificates of insurance, so their payroll gets added to your bill at audit as if they were employees. Both are avoidable with tracking and a certificate habit.
How to prepare from day one
Set an accurate payroll and revenue estimate at bind rather than a lowball that guarantees a true-up. Track payroll through the season so there are no surprises. Collect a certificate of insurance from every subcontractor before they start work, so their payroll does not land on your bill. And make sure your class codes are right, because a wrong code compounds the audit problem. Pay-as-you-go workers comp also reduces the size of any true-up.
Questions to ask your advisor
- Was my payroll estimate accurate at bind, or set to lowball the premium?
- Am I tracking payroll through the season?
- Am I collecting certificates from every subcontractor before they start?
- Are my class codes correct so the audit does not compound?
- Would pay-as-you-go reduce my audit true-up?
A premium audit is not supposed to be a surprise, and it only becomes one when a policy is sold without a plan to survive it. Accurate estimates, tracked payroll, collected subcontractor certificates, and correct class codes turn the year-end true-up into a formality. Setting it up right from day one is the difference between a clean audit and a bill that blindsides you.