Audit preparation
Most Workers' Compensation policies in California are audited at the end of the policy term. If you are a Sacramento employer, understanding how the payroll audit works can help you prepare, avoid surprises, and keep your final premium adjustment manageable.
Workers' Compensation premiums are initially estimated based on projected payroll. Because actual payroll often differs from the estimate, carriers conduct an audit after the policy period ends to reconcile the difference. If your payroll was higher than estimated, you may owe an additional premium. If it was lower, you may receive a return premium.
The auditor typically examines your payroll records for the policy period. This includes:
The auditor's goal is to confirm that the payroll reported matches what was actually paid and that each employee is assigned to the correct class code.
Gather your records before the audit begins. Organize payroll by employee and by class code. If you hired subcontractors, collect their Workers' Compensation certificates — without proof that a subcontractor carried their own coverage, the carrier may include their pay in your audit, increasing your premium.
Review your class codes with your agent before the audit. If job duties changed during the year, note when and why. A clear explanation helps the auditor assign the correct codes instead of defaulting to higher-rated categories.
One frequent issue is missing subcontractor certificates. If a Sacramento contractor hires a 1099 worker without verifying their Workers' Comp coverage, that worker's compensation may be added to the employer's audit. Another pitfall is lumping all employees into a single class code when duties vary — a clerk should not be coded as a roofer, and vice versa.
Disorganized records also create problems. If the auditor cannot verify payroll by class code, they may estimate based on the highest-rated code, which can inflate the final billing.
The carrier issues an audit statement showing the adjusted premium. If you owe additional premium, it is typically due within 30 days. If you are owed a return, the carrier issues a refund or applies it to your next renewal. Review the statement carefully and ask your agent to explain any discrepancies before paying.
To get your Workers' Comp policy set up correctly from the start, visit the Sacramento Workers' Comp insurance page. Also explore General Liability and Commercial Auto for full business coverage. Call 916-822-9595 — open 7 days a week, 8am to 8pm.