Audits
Premium audits: why they happen, how to prepare.
≈ 3 MIN READ
A few weeks after your policy year ends, a letter arrives: the carrier wants to audit you. It sounds adversarial. It usually isn't — but how it goes depends almost entirely on the records you kept along the way.
Why audits exist
Workers comp and general liability premiums are calculated from your exposure — payroll, sales, subcontractor costs. At the start of the policy year, nobody knows those numbers yet, so the policy is issued on estimates. The audit is the true-up: the carrier compares what you estimated to what actually happened. If actual exposure came in higher, you owe additional premium. If it came in lower, you're owed a return. That second part is real — audits run in both directions, and accurate records are how you collect when they run yours.
What the auditor looks at
- Payroll records — summaries by employee and by job duty, federal 941s, state filings. The auditor wants payroll assigned to the right class codes, which is where preparation pays most.
- Overtime detail — in many states the premium portion of overtime can be excluded from exposure, but only if your records separate it out. Lumped-together payroll gets charged in full.
- Sales figures — for GL exposure rated on revenue.
- Subcontractor costs and certificates — what you paid subs, with a certificate of insurance for each. Subs without certificates are routinely charged into your own exposure, as if their risk were your payroll.
- Ownership and officer information — officer payroll is often capped or excludable depending on elections and state rules.
How to walk in prepared
The businesses that sail through audits do three unexciting things all year: they keep payroll separated by class of work, they track overtime separately, and they collect a current certificate from every sub before the sub starts. Then audit prep is an afternoon of assembling what already exists. Trying to reconstruct a year of records in the two weeks after the letter arrives is where audit pain actually comes from.
If the result looks wrong
Audit results can be disputed — misapplied class codes, sub costs charged despite valid certificates, overtime not credited. Don't just pay a surprise bill; send it to us first. We review audit results with clients, and when something's been misclassified, we work the dispute with the carrier. The audit is also a preview of next year's estimates, so getting it right compounds.
This article is general information, not advice about your specific situation, and not a quote, binder, or contract of insurance. Audit rules vary by state and carrier.