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A premium audit is the carrier's after-the-fact true-up of your workers' compensation, general liability, or auto policy. Those premiums are based on estimated payroll, revenue, or vehicle counts, so when the policy year ends the carrier audits the actuals and either bills additional premium or returns the difference. Preparation is mostly bookkeeping discipline: clean payroll records by class code, subcontractor certificates on file, and overtime broken out, because audits punish disorganization more than they punish growth.
Workers' comp premium is a rate per hundred dollars of payroll, by classification; general liability is often rated on revenue. At binding, those figures are estimates. The audit replaces estimates with reality. A business that grew owes more premium because it had more exposure; one that shrank gets money back. The audit is not an accusation, but its findings are binding and adjustable only through a formal dispute process, which makes the quality of records you hand the auditor the whole ballgame.
Audit surprises follow familiar patterns. Misclassification: payroll landing in higher-rated class codes than the work warrants, often because records do not split employees' time between classes, and unsplit time defaults to the highest rate. Uninsured subcontractors: without a certificate proving each sub carried its own comp, the auditor charges their payroll to your policy as if they were employees. And overtime: most states rate only the straight-time portion of overtime, but only if your records separate it. Every one of these is a documentation problem before it is a premium problem.
Maintain payroll by class code all year, not reconstructed the week the auditor calls. Keep a certificate file for every subcontractor with dates covering the work performed. Break out overtime, severance, and excludable pay in the payroll system. Review the audit workpapers before accepting them, auditors err, and class-code corrections after the fact are far harder than contemporaneous records. And feed what the audit reveals back into next year's estimates, because a chronically low estimate just converts your renewal into an annual surprise bill.
Carriers respond to non-compliance by estimating your exposure upward, billing it, and often cancelling or non-renewing. Audit non-compliance also follows the business in underwriting files. Cooperating with organized records is strictly cheaper.
Yes, through the carrier's formal dispute process, with documentation. Class-code disputes and subcontractor reclassifications succeed when records support them, which is one more reason the records matter more than the argument.
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