Part 2. How to Navigate a Workers’ Compensation Audit with Confidence

Once your workers’ compensation audit is scheduled, preparation shifts into active management. This is where mindset and presentation matter.

Auditors aren’t looking for ways to penalize you. Their job is to verify payroll numbers, employee classifications, and contractor coverage so that final premiums reflect your actual risk and exposure.

Approach the audit as a reconciliation—not a test—and things tend to go more smoothly.

What Auditors Will Ask For

Expect to provide clear, organized versions of the following:

• Detailed payroll reports by employee and class code

• Quarterly tax filings (e.g., Federal 941 forms)

• Payment records for all subcontractors and 1099 workers

• Certificates of Insurance for all independent contractors

• Job descriptions outlining each employee’s duties and responsibilities

How to Present Information Effectively

• Group payroll and classification data by workers’ comp class code

• Keep accurate records of overtime pay. Properly documented overtime premiums are excluded from remuneration.

• Understand what counts as remuneration. Wages, commissions, travel time, lodging, and bonuses are typically included. Other forms of compensation may be excluded—e.g., we recently advised a client to exclude royalties paid to artists, which were initially misclassified and significantly inflated their premium.

• Avoid incomplete records. Missing or unclear documentation can lead auditors to make conservative (read: costly) assumptions.

• Include valid Certificates of Insurance (COIs) for every independent contractor hired during the policy period. Missing COIs often trigger retroactive premium charges.

• Require solopreneurs to secure their own workers’ compensation coverage. Many mistakenly believe they can’t—but they can. Doing so reduces your audit liability and protects your business from downstream risk.

Red Flags That Lead to Premium Adjustments

• Missing or expired contractor COIs

• Employees performing multiple roles (e.g., both warehouse and clerical)—they’ll be assigned the higher-risk (and higher-rate) classification

• Untracked or improperly classified overtime

Communication Best Practices

• Designate a single point of contact for the audit

• Route all documentation and questions through that person

• If something in the auditor’s request is unclear, ask for clarification

• Keep a written log of all communications, just in case discrepancies arise later

Treating your audit as a two-way conversation—not a one-sided request—makes the process smoother and helps avoid surprises.

Up next in Part 3: what to expect after the audit report arrives, how to handle disputes, and how to build a system that prevents future surprises.

Photo by sydney Rae on Unsplash