Premium audits:what to expect.

1. What a premium audit actually is

A premium audit is the reconciliation process that happens at the end of every workers comp policy. Your policy was priced on estimated payroll at the start of the year. The audit compares that estimate to what your payroll actually was — and adjusts your final premium accordingly.

Three outcomes:

• Estimated high — your actual payroll came in lower than projected. You get a refund.
• Estimated low — your actual payroll came in higher. You owe the difference, plus often a premium-audit surcharge.
• Estimated right — no adjustment. Clean policy close.

2. Why it happens on every policy

Workers comp is a pay-for-actual-exposure product. Unlike, say, your car insurance — where the rate is set per year and doesn't adjust mid-policy — workers comp premium is fundamentally tied to payroll, and payroll moves.

If you grew 40% during the policy year, the carrier was exposed to 40% more employee-injury risk than the premium they collected. The audit captures that. If you shrunk 20%, the carrier collected premium for exposure that didn't exist — they owe you back.

Carriers don't choose whether to audit. State regulators require it for most policies. It's how the workers comp system stays actuarially sound.

3. The audit timeline

• 30–60 days before policy end: you may receive a pre-audit notice
• Policy end date: policy expires, audit window opens
• 30–90 days after policy end: the actual audit happens
• Within 120 days after policy end: you receive the audit worksheet and final invoice or credit
• 30–60 days after invoice: final payment due (if you owe) or credit applied (if refund)

If you move carriers, your old carrier still audits your old policy. You can't escape audit by switching. (And if you refuse to cooperate with the audit, carriers can impose an "estimated audit" — always at their most unfavorable assumptions.)

4. What auditors look at

A workers comp auditor needs to answer three questions:

a. What was your actual payroll?

They'll request payroll records — typically your 941 forms (quarterly federal tax filings), state unemployment filings, and payroll register summariescovering the policy period. In some cases they'll look at W-2s, 1099s, and general ledger.

b. How does your payroll break down by classification?

Every employee's wages get assigned to a class code. If you have a split classification (say, field crew at 5645 and supervisor at 5606), the auditor verifies the split was legitimate. They'll look at job descriptions, time cards, and interview verification if needed.

c. Who's a subcontractor and are they insured?

Here's where a lot of audits get expensive. In construction states, uninsured subcontractorscount as your employees for workers comp purposes. If you paid $100,000 to a sub who didn't have their own policy, that $100,000 gets added to your payroll at your class rate — often a 5-figure surprise bill.

Auditors will request certificates of insurance for every 1099 you paid. Don't have a cert on file? They'll add that sub's payments to your exposure. Every time.

5. Common audit findings that hurt

• Uninsured subs. #1 surprise bill source. Always collect + keep certs.
• Overtime miscategorized. In most states, OT is excluded from comp payroll above straight time — but only if coded correctly. Auditors will add it back if it wasn't.
• Bonuses and commissions. Often included in payroll for comp purposes. Missing from your estimate = audit hit.
• Wrong class codes. If you claimed the low-rate supervisor code (5606) for time that was actually field labor (5645), auditor reclassifies it at the higher rate.
• Growth miscaptured. If you estimated for last year's payroll and grew 25%, the audit captures the growth at settle-up.
• Owner payroll in or out. Depending on your entity type and state, owner wages may or may not be excluded. Getting this wrong both ways costs money.

6. How to prepare (6-month checklist)

Treat your audit prep like a mini tax filing — organized records prevent expensive surprises.

6 months before renewal

• Review your current payroll projection vs. actual trajectory. If you're trending 15%+ off your estimate, call your carrier now to adjust. Small adjustments now = no giant bill later.
• Confirm every 1099 sub you're using has a valid current workers comp cert on file.

3 months before audit

• Pull copies of your 941s for the policy period.
• Run a payroll summary by employee showing wages in and out of the class codes on your policy.
• Review your 1099 file — every sub, every payment. Any certs that will be expired by audit date get a current replacement.

Audit day

• Provide requested documents promptly. Delays trigger estimated audits, which are always against you.
• Ask for the auditor's worksheet when complete — don't accept just a final number.
• Walk through the worksheet with your agent before paying anything.

7. What to do if you disagree with the audit

Audit findings are not final until you accept them. You have dispute rights. Here's the process:

1. Request the worksheet. You're entitled to see the line-by-line calculations. Don't accept just a summary bill.
2. Identify the specific disputed items. Was a sub counted as an employee when you have the cert? Was payroll miscategorized? Was OT added back incorrectly? Pin down exactly what's wrong.
3. File a formal dispute with the carrier. Most carriers have a 60–90-day dispute window from the audit invoice.
4. Get your agent involved. A good agent will push back on audit findings with the carrier. This is part of what you pay them for.
5. Escalate to state if needed. If the carrier won't budge and you have clear grounds, most states have a workers comp bureau that handles audit disputes.

8. Pay-as-you-go: the audit prevention strategy

The best audit is the one that doesn't find anything because premium was already accurate throughout the year. That's what pay-as-you-go billing delivers.

With pay-as-you-go, your premium gets calculated and collected with each payroll run — in real time, based on actual wages. No year-end reconciliation. No surprise bill. Cash flow stays predictable.

Advantages:

• Premium is always current — no over/under collection
• No year-end audit bill (or refund) — you've paid exactly what you owe as you went
• Seasonal businesses stop over-paying in slow months and under-paying in busy months
• Growth doesn't trigger surprise bills — premium scales with payroll automatically

Not every carrier offers pay-as-you-go, and some have minimums or setup requirements. If it fits your business, ask about it at quote time.

Figures on this page are illustrative. Your premium depends on your state, class codes, payroll, experience modifier, and carrier. Nothing here is a quote or a promise of rate.