What is a workers’ compensation audit?

Workers’ compensation premiums are partially based on estimated payroll and employee job classifications. Because these factors can change during the year, insurers perform audits to compare actual figures to your original estimates.

Audits help businesses:

• Ensure accuracy: Confirm the employer paid the correct premium.

• Prevent underpayment: Protect insurers from covering more risk than was paid for.

• Prevent overpayment: Provide employers with refunds if they paid more than necessary.

• Meet state requirements: Many states require audits to help ensure compliance.

The audit process can feel intimidating, but being prepared makes it much smoother. Here are a few steps you can take leading up to your scheduled audit:

• Organize payroll and tax records for the full audit period.

• Review employee classifications to help ensure each worker is assigned to the correct category. Misclassification can lead to overpaying.

• Document overtime, bonuses, and seasonal wages separately so auditors can apply proper adjustments.

• Keep subcontractor records available, including certificates of insurance, if applicable.

• Maintain accurate ownership records for officers, partners, or LLC members who may be exempt from coverage in some states.

Every insurer has its own process, and requirements vary based on your industry, business size, and risk profile. But in general, here’s a brief overview of what happens:

• The audit may be conducted in different formats: virtually, by mail, or on-site.

• You’ll need to provide the requested payroll and classification documents.

• An auditor may ask clarifying questions about roles, subcontractors, or seasonal employees.

• Your insurer will compare actual payroll and risk exposure with your original estimates.

• You’ll receive a premium adjustment:

  • If you overpaid, you may receive a refund or credit.

  • If you underpaid, you’ll receive a bill for the difference.

Because audits focus heavily on payroll, classifications, and claims history, employers who proactively manage workplace safety and keep organized records are often better positioned for stable premiums.

For a deeper dive into how workers’ compensation costs are calculated, and strategies to manage them, read our workers’ compensation 101 guide.