What a Workers’ Comp Audit Looks At, and How to Avoid a Surprise Bill
Sep 28, 2026
The bill nobody planned for
Your policy ended months ago. Then a letter arrives: “Your audit is complete. Additional premium due: $6,400.”
Nobody likes that letter, and most owners don’t see it coming. The good news is that nearly every surprise audit bill traces back to a handful of causes you can control.
Here’s what a workers’ comp audit looks at and how to keep the bill close to what you expected. It takes about five minutes to read.
What a workers’ comp audit is
A workers’ comp audit is an end-of-policy check. When you buy the policy, the carrier prices it from your estimate of two things: how much payroll you’ll have, and what kind of work your people do. After the policy ends, the auditor compares that estimate to what actually happened.
General liability policies get audited too. In both cases, your premium is based on estimates: gross sales, payroll, owner payroll, subcontractor costs, etc. At the end of the term, the carrier compares those estimates to your actual records.
Most audits happen within 30 to 60 days of the policy ending, but the bill can show up later. Some are done by phone or mail, and larger or more complex businesses may get a visit in person. They all count the same.
It goes both ways. If your payroll came in lower than you estimated, you get money back.
Working in a monopolistic state like Washington? Workers’ comp there runs through the state’s Department of Labor & Industries instead of a private carrier. You report hours each quarter, and the state can audit those reports too. The records that protect you are the same.
What the auditor looks at
The auditor is checking four things: how much you paid, what work your people actually do, whether overtime is broken out, and who worked for you as a subcontractor. Here’s what they check and what they’ll ask you for.
Total payroll
What they ask for: Payroll tax filings (Form 941 and state unemployment reports), W-2s, and your payroll register.
Why it moves your bill: Your premium is a rate times every $100 of payroll, so more payroll means more premium.
Class codes
What they ask for: Job descriptions. They look at what each crew actually does.
Why it moves your bill: A class code is the code that sets your rate for a type of work. Clerical work costs pennies per $100 of payroll. Roofing can cost $20 or more.
Overtime
What they ask for: Records that separate regular pay from the extra overtime pay.
Why it moves your bill: The extra half-time portion can be excluded, but only if your records show it separately.
Subcontractors
What they ask for: Certificates of insurance, signed 1099s, and your general ledger.
Why it moves your bill: A sub without a valid certificate can be treated as your own uninsured employee.
That last one causes the most surprises. Under standard audit rules, if you can’t show a certificate for a subcontractor, the auditor can count a large share of what you paid them under your payroll. If the sub’s work is high-risk, that can add up fast.
Why the bill comes out higher
A bigger bill usually means one of these five things happened during the year:
• Sales grew (not work comp related): You estimated $1 million in sales and finished the policy term with $1.5 million of work. The carrier can charge additional premium on the $500,000 that wasn’t in your estimate.
• Payroll grew: You estimated $400,000 in gross payroll, but actually paid $520,000. For example, at a rate of $8 per $100 of payroll, you owe premium on that extra $120,000, which is $9,600. Growth is a good problem, but if the carrier doesn’t know about it until the audit, you get an unwanted surprise bill.
• A job changed: A laborer moved into field supervision, or a crew started a higher-risk type of work, and nobody updated the class code with the insurer.
• Uninsured subs: A subcontractor’s certificate was missing or expired, so their pay got counted as yours.
• A wrong class code: A code that was wrong from day one and never got fixed gets corrected at audit, usually back to the start of the policy.
All five are things you can manage during the year, and that’s where the next section comes in.
How to avoid a surprise bill
None of this is hard, but it works best when you do it during the year instead of the week the auditor calls.
• Review before you estimate: Look at last year’s actual sales, payroll, owner payroll, and subcontractor costs before you set next year’s numbers. Those four drive your premium.
• Check in during the year: At Great Northwest Insurance Brokers, we reach out in the first two quarters to see whether you’re still on pace. If sales have gone up in a big way, if you hire, or if you win a big job, we can ask the carrier to update your estimate early. You pay a little along the way instead of a lot at the end, and there’s no large surprise waiting.
• Get certificates before work starts: Collect a certificate of insurance, with an additional insured endorsement, from every subcontractor before they touch a job. Keep the expired ones too, because the auditor wants to see continuous coverage for the whole time they worked for you.
• Check your class codes: Look at the codes on your policy and compare them to what your crews do. If someone’s role changes, let us know and write down what they do in a short job description.
• Track overtime separately: Ask your payroll provider to show regular pay and the overtime premium on separate lines.
• Keep employees and 1099s straight: Auditors look hard at 1099 workers who take direction from you, use your tools, or work only for you. Make sure the paperwork matches how they actually work.
• Don’t ignore the auditor: If the carrier can’t get your records, they can estimate your payroll for you, and estimates tend to run high. Or worse, they could non-renew your policy for the coming term. Answer the request, even if it’s a quick phone call.
Where the rules allow it, dividing payroll by class code during the year can keep your audit bill down. If someone does more than one type of work, ask your payroll provider to track their hours and wages by job type. Without that split, the auditor can put all of their pay in the highest-rated code.
And when the bill does arrive, don’t just pay it. Send it to us first. Ask for the audit worksheet, because disputes have deadlines, often 30 to 60 days from the audit date, and most get resolved when you provide clear records.
How to get help from us
If you’re one of our current clients, send your account manager your latest sales and payroll numbers and any subcontractor certificates you’re missing. We’ll compare them to your policy so you find out about any gaps now, not when the audit letter shows up.
If an audit bill just landed and something looks off, call us before you pay it. That’s a normal day at Great Northwest Insurance Brokers. We work with contractors across the Western United States. We’ll read the audit worksheet line by line and tell you what’s right, what’s not, and what to send back.
Give us a call at 503-852-3072 or visit gnwib.com.
Marty McLaughlin, Great Northwest Insurance Brokers