If your business has a workers’ compensation insurance policy, you’ll eventually go through a
workers’ comp audit. For many business owners, audits sound intimidating—but in reality, they’re a
normal and expected part of workers’ compensation insurance.
Understanding how workers’ comp audits work, what the insurance company is looking for, and how to prepare can help you avoid surprises, reduce stress, and prevent unexpected premium increases.
This guide walks you through the process in plain English.
Why Do Workers’ Comp Audits Happen?
Workers’ compensation policies are based on
estimated payroll and job classifications at the beginning of the policy term. Since payroll often changes throughout the year, insurance companies perform audits to reconcile:
- Actual payroll vs. estimated payroll
- Changes in job duties or operations
- Use of subcontractors or independent contractors
The audit ensures that your premium reflects your
real exposure, not just the estimate from when the policy started.
When Does a Workers’ Comp Audit Occur?
Most workers’ comp audits happen
after the policy period ends, typically within 30–90 days of expiration. The insurance carrier will contact you to schedule or complete the audit.
This applies whether:
- Your policy renews
- You switch insurance companies
- Your policy is canceled mid-term
Types of Workers’ Comp Audits
Insurance companies may conduct audits in several ways depending on your business size and complexity.
In-Person Audit
An auditor visits your business to review records and discuss operations. This is more common for:
- Contractors
- Larger payrolls
- Higher-risk industries
Phone Audit
A scheduled call where you provide payroll details and answer questions.
Mail or Email Audit
You receive forms to complete and return with supporting documents.
All audit types serve the same purpose—the format just changes.
What Records Do You Need for a Workers’ Comp Audit?
Having your documents ready helps the audit go smoothly and reduces the risk of errors.
Common records include:
- Payroll reports (by employee)
- Quarterly tax filings
- Job descriptions or breakdowns of duties
- Owner payroll or owner exclusion forms
- Certificates of insurance for subcontractors
Missing or incomplete records often lead to
higher audited premiums.
Common Mistakes That Lead to Higher Premiums
Many audit issues are avoidable. Some of the most common mistakes include:
- Misclassifying employees into higher-risk job codes
- Not separating clerical payroll from field payroll
- Paying subcontractors without collecting certificates of insurance
- Forgetting to submit owner exclusion paperwork
- Estimating payroll instead of providing actual figures
Even small errors can significantly impact your final audit results.
How Subcontractors Affect Workers’ Comp Audits
If you use subcontractors, this is one of the
most critical audit areas.
If a subcontractor does
not provide a valid workers’ compensation certificate, the insurance company may:
- Treat them as your employee
- Include their payments as payroll
- Charge additional premium
Keeping certificates of insurance on file for all subcontractors is essential.
Owner Payroll and Owner Exclusions
Owners are handled differently depending on the state and business structure.
During the audit, the carrier will verify:
- Whether owners are included or excluded
- Whether minimum or maximum payroll caps apply
- Whether exclusion forms were properly filed
Incorrect handling of owner payroll is a common audit problem.
What Happens If You Don’t Complete a Workers’ Comp Audit?
Failing to complete an audit can have serious consequences, including:
- Estimated audits with inflated payroll
- Higher premiums than necessary
- Policy non-renewal or cancellation
- Difficulty obtaining coverage with other carriers
Ignoring an audit request is one of the costliest mistakes a business can make.
Can You Dispute a Workers’ Comp Audit?
Yes. If you believe there’s an error, you can dispute an audit.
This usually involves:
- Providing corrected payroll records
- Clarifying job classifications
- Submitting missing certificates or documentation
Disputes are time-sensitive, so it’s important to act quickly.
How to Prepare for a Smooth Workers’ Comp Audit
The best audits are the ones you’re prepared for.
A few best practices:
- Track payroll accurately throughout the year
- Separate job duties clearly
- Collect subcontractor certificates upfront
- Work with an insurance advisor who understands audits
Preparation often makes the difference between an audit that costs you money and one that doesn’t.
Final Thoughts
Workers’ comp audits aren’t something to fear—but they are something to take seriously. Understanding how they work and preparing properly can protect your business from unnecessary premium increases and coverage issues.
If you’re unsure how your payroll, subcontractors, or classifications will affect your audit, getting guidance early can save time and money.
📞 Need Help Reviewing Your Workers’ Comp Audit?
If you’d like help reviewing an upcoming audit or understanding how it could impact your premium, we’re happy to help. Contact us to make sure your workers’ compensation coverage and audit process are handled correctly.
