Workers' Comp Payroll Audit
How Audits Work and How a PEO Eliminates the Surprise
Traditional workers comp policies are based on estimated payroll, which means you get a year end audit to true up the difference. That audit can produce a large unexpected bill. PEOs solve this with pay-as-you-go workers comp, which ties your premium to actual payroll each cycle and eliminates the audit surprise.
Audit with traditional policies
With PEO pay-as-you-go billing
Audit bills can be a cash flow shock
To switch to pay-as-you-go
Key Workers Comp Factors
Estimated Payroll
Traditional policies are based on estimated annual payroll. If your actual payroll is higher, you owe more at audit. If lower, you get a refund.
Audit True Up
The year end audit compares your estimated to actual payroll. A large difference can produce a big bill or a big refund.
Class Code Verification
The audit also verifies your class codes. If employees were in the wrong code, your premium is adjusted, sometimes significantly.
Pay-As-You-Go
PEOs use pay-as-you-go billing, which ties your premium to actual payroll each cycle. No estimate means no audit surprise.
Subcontractor Audit
If you use subcontractors without certificates of insurance, the audit may charge you for their payroll as if they were your employees.
Audit Prevention
Accurate payroll reporting and class code assignment throughout the year prevents audit adjustments and surprises.
How Traditional Workers Comp Payroll Audits Work
Traditional workers comp policies are based on your estimated annual payroll. You pay premium throughout the year based on that estimate. At the end of the year, the carrier audits your actual payroll. If your actual payroll was higher than estimated, you owe the difference. If it was lower, you get a refund. The audit also verifies your class codes. If employees were in the wrong code, your premium is adjusted.
- Traditional policies are based on estimated annual payroll
- You pay premium based on the estimate all year
- At year end, the carrier audits your actual payroll
- Higher actual payroll means you owe more at audit
- Lower actual payroll means you get a refund
- The audit also verifies your class code assignments
Why Workers Comp Audits Create Cash Flow Shocks
The problem with traditional audits is the surprise. If your payroll was higher than estimated, you can get a large bill at year end that you were not expecting. For businesses with growing payrolls or seasonal fluctuations, this can be a significant cash flow shock. Subcontractor audits are even worse. If you used subs without certificates of insurance, the audit may charge you for their payroll as if they were your employees, which can double your premium.
How a PEO Eliminates the Audit Surprise
PEOs solve the audit problem with pay-as-you-go workers comp. Instead of estimating your annual payroll, the PEO ties your premium to your actual payroll each pay cycle. You pay exactly what you owe, when you owe it. No estimate means no year end audit true up. No surprise bill. Your workers comp cost tracks your actual payroll in real time, which makes budgeting predictable and eliminates the cash flow shock of a traditional audit.
Payroll Audit FAQ
What is a workers comp payroll audit?
How does a PEO eliminate the workers comp audit?
Can a workers comp audit produce a large bill?
What happens if my class codes are wrong during an audit?
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