Last updated: October 2026

Workers Comp Audit Preparation: What to Expect and How to Get Ready

Three record gaps can raise a workers comp audit bill. They are class codes that don't match the work, subcontractors with no certificate of insurance, and overtime that was never separated from base pay. The audit inspects your books and tax records to find the actual exposure during the policy period and set the proper premium.

How the Final Payroll Audit Sets Your Premium

In Texas, every workers comp policy is subject to a final payroll audit that compares actual payroll with the estimate the premium was built on. The carrier audits after the policy term ends, and the premium can go up or down for the audited period. In Texas, the deposit premium is credited to the final earned premium adjustment or to the renewal policy.

How Auditors Review Your Records During a Workers Comp Audit

Preparation starts with understanding what the auditor wants. New York’s State Insurance Fund asks for your payroll book, quarterly 941 filings, NYS-45 returns, general ledger and certificates of insurance for the subcontractors you used.

The fund offers three ways to verify payroll: onsite with an auditor, by video conference, or by uploading the required documents online. With an upload, the fund reviews the records in-house and then contacts you to go over the results.

The Reclassification Trap

In Texas, a clerical employee (code 8810) who has any other duty has their total payroll assigned to the highest rated classification they are exposed to. Code 8810 is not eligible for division of payroll.

Texas allows one employee’s payroll to be divided between classifications in construction, erection, oil and gas field work, and stevedoring. Even then, the employer needs accurate records of the work each employee performed, and an estimated or percentage allocation is not permitted. Without that record, Texas assigns the entire payroll of employees who interchange to the highest rated classification for any part of their work. For construction, New York’s State Insurance Fund lists payroll separation based on actual time worked in each code, not by percentages, as part of good record keeping.

Your records tell the story before you do.

Reclassification works both ways. If you’ve been overpaying because employees belong in a lower class code, a class code audit can produce a credit.

Costly Mistakes in Workers Comp Audit Prep

In Texas and New York, the overtime premium (the extra half in time-and-a-half pay) is excluded from the payroll your premium is calculated on. If a company pays $200,000 a year in time-and-a-half overtime, one third of it, about $66,667, is overtime premium that can be excluded. Both require records that show overtime separately for each employee and totaled by classification. When payroll reports don’t separate overtime from base pay, New York gives no credit for it.

In New York, if you cannot produce workers comp coverage documents for a subcontractor during the audit, your premium is recalculated to include them in your payroll.

Check whether any owner was meant to be excluded from coverage. In Texas, partners and sole proprietors are covered under the policy unless specifically excluded by the Partners, Officers and Others Exclusion Endorsement (WC 42 03 08). Executive officers are covered unless specifically excluded too.

The standard workers comp policy requires you to let the carrier examine and audit your records. In New York, a missed appointment, insufficient records or no response can lead the State Insurance Fund to conduct an estimated payroll verification. That can produce a higher premium than a proper verification would have.

State Rules Change Which Class Code System Applies

The National Council on Compensation Insurance (NCCI) maintains workers comp classifications, rules, plans and forms in the states where it is licensed. NCCI’s own state map marks Texas as an NCCI state and California, New York and Pennsylvania as independent bureau states. California’s bureau is the Workers’ Compensation Insurance Rating Bureau (WCIRB).

Who provides the coverage also varies by state. Four states run their own workers’ comp funds: North Dakota, Ohio, Washington and Wyoming. Who must buy from each fund differs by state, and the workers comp guide explains the rules for each.

Your Pre-Audit Action Plan

Pull your policy declarations page and verify every class code against actual job duties today. If construction employees split time between classifications, record the actual time spent in each with daily time records right now.

Collect certificates of insurance from every subcontractor you paid during the policy period. A certificate shows active coverage only as of its date, so check periodically that each sub’s coverage is still active.

Separate overtime premiums from base wages in your payroll reports. If your payroll software doesn’t generate an overtime detail breakdown, ask your provider.

Reconcile your payroll register against your quarterly 941 totals. If they differ, find the discrepancy before the auditor does.

Read our workers comp guide for how the experience modification rate (EMR) affects premium costs over time. Our payroll blog covers related audit and compliance topics.

This is not legal or financial advice. Consult a qualified professional for your specific situation.