Preparing for your final audit
 June 28, 2013

Workers' compensation premiums are based on payroll. Most workers’ compensation policies require a physical audit of your payroll records at the conclusion of the policy to determine the final premium for that policy year. This audit is usually completed within 90 days of the policy expiring.

The final audit can be a headache or a fairly simple process depending on how you prepare. Consider the following preparatory steps to reduce your audit anxiety:

Keep Accurate Records During the Policy Year
You can help reduce the amount of time and materials required during an audit and expedite the process by:

  • Reporting payroll accurately throughout the policy year, using correct amounts and classifications.
  • Informing the insurance carrier or your broker if operations change or if new employees are hired who perform different tasks during the policy year.
  • Maintaining comprehensive records, including payroll earned under endorsement for a waiver of subrogation.

Payroll Records
Gather in advance the following records:

  • Certificates of insurance for all independent contractors.
  • 1099s issued.
  • Names and job titles of employees.
  • State Quarterly Wage and Withholding Reports (DE 6 forms).
  • Payroll journals.
  • Payroll reports for the coverage period being audited.

The issues associated with what constitutes an independent contractor versus an employee are complex. Consult your broker to ensure these service providers do not meet the definition of an employee.

While the information needed for each audit may differ, your auditor may ask you to make the following records available as well:

  • Payroll registers, time books, time cards, check registers, check stubs, and checkbooks.
  • Cash disbursement journals, cash books, and petty cash books.
  • General or subsidiary ledgers, job cost records, bonus ledgers, and commission ledgers. Profit-sharing reports, prevailing-wage determination sheets, and federal and state tax forms.
  • Contracts with those individuals that are considered independent contractors.

Take Steps to Avoid Large Premium Differences
Here are some steps you can take to avoid large differences between your final audit-based premium and the amount you paid during the policy year: Report your payroll accurately and check your math calculations.

  • If you believe you have a Workers’ Compensation Insurance Rating Bureau issued experience modification, but it is not shown on your policy or payroll report, contact your broker or insurance carrier right away.
  • If you find that you have made an error on a submitted payroll report, file a revised report. Do not report the payroll of officers, partners, or owners who are excluded from coverage. If you have officers who are covered under your policy, you should include their names on your payroll report. Be aware of the minimum and maximum thresholds. Once an officer’s earnings exceed the maximum threshold for a policy year, you should no longer calculate premium for that officer.
  • If your operations or employee job duties change during the policy year, inform your broker or insurance carrier and adjust your payroll reporting accordingly.
  • For more information on payroll reporting and premium audits and how you can ensure your records are accurate, contact us at


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