Workers’ compensation policies are based on estimated payroll for the year. However, since exact wages are difficult to predict, California insurance carriers conduct an annual audit at the end of the policy term to verify the actual wages paid to workers.
What the Audit Includes
The insurance carrier will review:
• Actual payroll paid over the policy period
• Job classifications of your employees
• Use of subcontractors and independent contractors
• Verification of certificates of insurance for subcontractors
• Any business changes that may affect coverage
What It Means for You
If your actual payroll exceeds your estimate, you will incur an additional insurance premium for the difference.
If your actual payroll is lower than estimated, you may be eligible for a refund of the excess premium paid.
If you incorrectly classify employees under a lower-risk category, you might be charged a lower premium. However, during an audit, if the insurer discovers the misclassification, they could adjust the premium to reflect the correct, higher-risk classification.
If you fail to provide certificates of insurance for your subcontractors to verify that they have their own workers' compensation coverage, your insurance carrier may classify them as 'uninsured' employees, which could result in additional premium charges.
Why Accurate Estimates Matter
Getting your payroll classification and estimate right from the start, helps you avoid large surprise bills during the audit and keeps your business compliant with California state law.
Need Help with Your Workers’ Comp Audit?
Preparing for a workers’ compensation audit can be complex. For guidance tailored to your business, contact your tax advisor, accountant, or attorney to ensure you’re fully prepared and compliant.
