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.
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.
When it comes to paying Workers’ Comp premiums, you’ve got two main options:
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.
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:
Both options have their pros and cons, so it’s about finding what works best for your business.
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.
Here’s the secret to nailing your Workers’ Comp audit: preparation. A little work upfront can save you a lot of stress later.
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.
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.