What Is a Workers’ Comp Audit and How Can Your Business Be Ready?

Running a business is no small feat—there’s always something to manage, and a Workers’ Compensation (Workers’ Comp) audit might be one of them. If your policy uses estimated wages, an audit is usually part of the package when it’s time to renew. But don’t worry—it’s not as intimidating as it sounds! Let’s dive into what a Workers’ Comp audit is, why it happens, and how you can handle it like a pro. 

Why Do Workers’ Comp Audits Happen? 

Workers’ Comp insurance is a legal must-have in 49 states (looking at you, Texas, for being the exception). It protects your employees—and your business—in case of workplace injuries. When you buy a Workers’ Comp policy, you usually estimate your annual payroll. But life happens: businesses grow, employees come and go, overtime adds up, and those estimates can quickly get off track. 

That’s where audits come in. Insurance companies use them to check if your premiums match the actual wages and risks in your business. If you’ve hired extra staff or had a lot of overtime, you might owe more. If your payroll came in under what you estimated, you could get a refund. It’s all about making sure the numbers are fair. 

Traditional vs. Pay-As-You-Go Workers’ Comp Insurance 

When it comes to paying Workers’ Comp premiums, you’ve got two main options: 

Traditional Workers’ Comp Insurance 

With this approach, you pay a fixed annual premium based on an estimated payroll. It’s simple and predictable, but there’s a catch: misestimating payroll can lead to surprise costs (or refunds) after the audit. Plus, upfront payments can put a strain on your cash flow. 

Pay-As-You-Go Workers’ Comp Insurance 

This flexible option ties premiums to your actual payroll each pay period. Instead of guessing, you pay as you go—making it a great fit for industries like construction or restaurants, where payroll fluctuates a lot. 

Why Pay-As-You-Go is Popular: 

• Smaller, regular payments help with cash flow. 

• Fewer surprises—your premiums match real wages. 

• Streamlined with payroll systems, so it’s easy to manage. 

Both options have their pros and cons, so it’s about finding what works best for your business.  

What Happens During a Workers’ Comp Audit? 

An audit is pretty straightforward. Your insurance company will ask for payroll records, like 941 forms and payroll registers, to double-check that wages and employee classifications are accurate. Why do they care about classifications? Because different jobs come with different levels of risk—and risk equals cost. 

For example, an office worker has a much lower risk (and premium) compared to a construction worker or a restaurant cook. Audits make sure everyone’s classified correctly so you’re paying the right amount. 

Pro Tip: Don’t forget that overtime is based on regular hourly wages, not time-and-a-half. This little detail can save you from overpaying premiums. 

How to Make Audits a Breeze 

Here’s the secret to nailing your Workers’ Comp audit: preparation. A little work upfront can save you a lot of stress later. 

• Set Up Your Payroll System Right: Use payroll software to assign workers’ comp codes to employees. This makes generating reports during audits a snap. 

• Keep Clean Records: Double-check that employee classifications and wages are accurate. Missteps here can lead to frustrating back-and-forth with your insurer. 

• Stay Organized: Have payroll documents, 941 forms, and workers’ comp reports ready to go. The more complete and organized your records, the faster the audit. 

Why Compliance Is Non-Negotiable 

Here’s the deal: Workers’ Comp insurance isn’t just a good idea—it’s legally required in most states. Skipping coverage could land you in hot water, with fines, revoked licenses, or even personal liability for employee injuries. Compliance isn’t just about following the rules—it’s about protecting your employees and your business. 

Bottom Line: Be Ready, Not Worried 

Workers’ Comp audits don’t have to be scary. With the right tools, clean records, and a clear understanding of the process, you can handle it without breaking a sweat. Whether you prefer the predictability of traditional premiums or the flexibility of pay-as-you-go, what matters is staying informed and prepared. 

Still have questions? We’re here to help! Let’s chat and make sure your business is set up for success, no matter what comes your way.