Every standard workers comp policy ends with a payroll audit. For many business owners, the audit is where surprises happen. Understanding how audits work helps you avoid unexpected bills and prepares you to dispute errors if they occur.
Why Workers Comp Policies Are Audited
Workers comp premiums are calculated based on estimated payroll at the start of the policy year. Since that estimate may differ from actual payroll, carriers audit at the end of the year to true up the premium. If you paid more workers than estimated, you owe additional premium. If you paid less, you receive a refund or credit.
What Auditors Look At
Auditors review payroll records including W-2s, 941 quarterly tax filings, cash disbursement records, and certificates of insurance from subcontractors. They verify that each employee is classified under the correct class code and that all payroll subject to workers comp is included. Payments to subcontractors without COIs are often added to your policy as additional payroll.
Common Audit Surprises and How to Avoid Them
The most common audit surprise is additional premium owed because subcontractor COIs were not collected and their payroll was added. The second most common is payroll growth during the year that was not reported to the carrier. Update your payroll estimate mid-year if your headcount grows significantly to avoid a large bill at audit.
Can You Dispute an Audit?
Yes. If you believe the audit is incorrect, you have the right to dispute it with supporting documentation. An experienced agent can help you gather the evidence and present the dispute effectively to the carrier.
Get Help from Comp Matters Inc.
Comp Matters Inc. helps East Coast businesses navigate workers comp audits and disputes. Call (631) 248-2500 for guidance on your next audit.
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