What Actually Happens During a Workers’ Compensation Audit
By Dayleen Aldridge | Risk Advisor | Ted Hamm Insurance
If you’ve never been through a workers’ compensation audit, the word alone can feel intimidating.
I understand why.
“Audit” sounds like something is wrong. Like someone is looking for a mistake.
In reality, a workers’ compensation audit is simply how your insurance carrier confirms that your premium was calculated correctly for the year that just ended.
It’s less an investigation and more a reconciliation.
Why Audits Happen
When your workers’ compensation policy starts, your premium is based on estimates—estimated payroll, estimated employee classifications, estimated exposure.
At the end of the policy period, the carrier compares those estimates to what actually happened.
Did your payroll come in higher than projected because business grew?
Did you add a position partway through the year?
Did employee duties shift in a way that changes their classification?
The audit is where all of that gets reconciled—and where your final premium is determined.
What the Auditor Is Actually Looking For
Most audits focus on a few core things:
• Total payroll by employee, compared to what was estimated
• Employee classifications, and whether they reflect the work actually performed
• Overtime, bonuses, and other payroll items, and how they should be treated
• Subcontractors and whether valid certificates of insurance were on file
• Ownership and officer payroll, which is handled differently under California law
None of this is designed to catch you off guard. It’s designed to make sure your policy reflects what actually happened in your business.
Why Contractors Often See Adjustments
In construction and trades, audits tend to surface more findings than in other industries—not because contractors do anything wrong, but because the work itself is more variable.
Crews move between job types. Supervisors step onto job sites. Seasonal work ramps up and down. Subcontractor relationships change project to project.
All of that creates more opportunities for the audit to catch something that shifted since your policy was written.
This is exactly why the conversations we have throughout the year—not just at renewal—matter so much.
How to Make Your Audit Smoother
A few habits go a long way:
• Keep payroll records organized by employee and by classification
• Collect and review subcontractor certificates of insurance as you go, not at year-end
• Flag any major staffing or payroll changes with your Risk Advisor when they happen, not months later
• Revisit your classifications periodically, especially if job duties have shifted
None of this requires extra software or a big administrative lift. It just requires treating your policy as a living part of the business, not a document you file away.
A Risk Advisor’s Perspective
I tell contractors this often: the audit isn’t the moment to worry about. It’s the moment where good habits during the year pay off.
If your payroll and classifications have been tracked accurately all along, the audit is usually quick and uneventful.
If they haven’t, the audit is where that catches up to you—sometimes in the form of additional premium you didn’t budget for.
Being proactive costs nothing. Being caught off guard can cost thousands.
Let’s Have the Conversation
If you have an audit coming up—or if it’s simply been a while since someone reviewed your payroll and classifications with you—I’d be glad to help you get ahead of it.
The goal isn’t just to survive the audit.
It’s to walk into it already knowing what it’s going to say.
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Ready to get ahead of your next workers’ compensation audit?
Let’s schedule a conversation and make sure there are no surprises when it arrives.
Dayleen Aldridge
Risk Advisor | Ted Hamm Insurance
Serving Paso Robles, the Central Coast, and California businesses.
