Your workers’ comp premium is based on an estimate of your payroll at the start of the policy year. The audit at the end of the year true’s that estimate up to what you actually paid — and it’s one of the most common places contractors either overpay or get blindsided by a bill, usually because of a handful of avoidable mistakes.

Wrong Class Codes

Payroll needs to be allocated to the correct class code for the work actually being performed — not a single blanket code for the whole crew. Misclassified payroll compares you to the wrong peer group and can meaningfully distort both your premium and your mod calculation.

Overtime Handled Incorrectly

Many states allow the premium portion of overtime pay (the extra half or full time beyond straight pay) to be excluded from payroll used for rating, provided it’s tracked and documented separately. Contractors who don’t separate this out often pay premium on payroll that didn’t need to count.

Subcontractor Documentation Gaps

If a subcontractor working on your job can’t produce their own valid certificate of insurance, their payroll can get absorbed into yours during the audit — meaning you end up paying premium for a crew that wasn’t technically your employees. Collecting and filing current COIs from every subcontractor before they start work is the single easiest way to avoid this.

Messy Records at Audit Time

Auditors work from what you can show them. Payroll records that are incomplete, inconsistent, or hard to reconcile against class codes tend to get resolved in the auditor’s favor by default — not yours. Clean, class-code-separated payroll records going into the audit are worth real money coming out of it.

How to Prepare

  • Keep payroll separated by class code throughout the year, not reconstructed at audit time.
  • Track and document overtime premium separately if your state allows the exclusion.
  • Collect and file subcontractor certificates of insurance before work begins, not after.
  • Request your audit worksheet in advance and review it before signing off.

Not sure your payroll records would hold up to an audit? Contact us — we review this as part of your annual coverage checkup.