A workers’ comp audit notice can be stressful, but with the right preparation, it doesn’t have to be.

Audits are a standard annual process for most businesses with an active workers’ compensation policy. The goal is to reconcile your estimated payroll from policy inception with your actual figures over the policy period . This determines whether your premiums were accurately calculated and whether you owe more or are due a refund.

The good news: the audit isn’t a trap.
The not-so-good news: if your records are incomplete or your use of 1099 contractors isn’t well-documented, it can get expensive quickly.

Here’s what you need to know and how to get ahead of it.

Why Workers’ Comp Audits Happen

Carriers use your initial payroll estimates and classification codes to calculate premiums at the start of your policy term. At the end of the year, they need to verify your actual payroll and exposures.

A workers’ comp audit helps carriers:

• Confirm your final premium amount

• Ensure employee classifications are accurate

• Identify whether subcontractors and 1099s carried proper coverage

What Triggers an Audit?

Most audits are part of routine policy procedures. However, your company may be flagged for closer review if:

• Your actual payroll significantly differs from your estimate

• You added locations, job roles, or classifications

• You worked with multiple subcontractors or 1099 contractors

• You operate in industries with variable risk or seasonal labor

Even if nothing changed, all active workers’ comp policies are typically subject to annual audit.

Types of Workers’ Comp Audits

Depending on your carrier and business size, your audit may happen through one of the following formats:

Each format requires the same level of documentation, so it is important to be organized no matter the method.

How to Prepare: What You’ll Need

Here’s what to gather before your audit begins:

• Payroll reports for the policy year

• Quarterly tax forms (e.g., 941s, SUTA)

• List of all W-2 employees with job titles and duties

• 1099s or payment records for all subcontractors

• Certificates of Insurance (COIs) for any independent contractors

• Job descriptions linked to class codes

• Breakdown of overtime wages

If you’ve worked with independent contractors, be sure to include:

• Copies of valid COIs showing workers’ comp coverage

• A clear explanation of their role and how they differ from W-2 employees

Pro Tip: If a subcontractor didn’t carry valid workers’ comp coverage, the auditor may charge for them as if they were your employee and charge you additional premium.

Common Pitfalls to Avoid

Even experienced teams can get tripped up. Some of the most common issues include:

• Misclassifying employees under incorrect codes

• Missing COIs or accepting expired ones from vendors

• Treating high-risk 1099 work as exempt

• Incomplete or inconsistent payroll records

• No documentation for why a worker was classified as 1099

Prepare Now, Save Later

An audit doesn’t have to be painful. With clean records, valid COIs, and clear documentation, you reduce your audit exposure and protect your bottom line.

In Part 2 of this series, we’ll walk you through what happens during the audit itself and how to present your information for the smoothest possible outcome.

Photo by Toa Heftiba on Unsplash