When you buy workers’ comp or general liability, the price is built on numbers you guess at: how much payroll you’ll run, what you’ll sell, what you’ll pay subcontractors. Nobody knows those numbers until the year is over. So the policy treats your upfront premium as a deposit, and after it ends an auditor goes through your books, either in person or from records you send. If your real payroll or sales came in higher, you owe more. If they came in lower, you may get money back. The surprises usually come from subcontractors with no proof of insurance and payroll sitting in the wrong class code.
How the estimate becomes a final premium
Workers’ comp is priced on payroll you estimate when the policy starts. The standard workers’ comp policy (NCCI’s WC 00 00 00 C) says the final premium is figured after the policy ends, using the actual, not the estimated, premium basis and the classifications and rates that apply to your work. It also requires you to keep the records needed to compute premium, such as ledgers, journals, payroll and disbursement records, tax reports and contracts, and to hand over copies when asked. The insurer can audit during the policy period and for three years after it ends.
For general liability, the Texas Department of Insurance notes that most commercial general liability policies are auditable: what you pay up front is a deposit, based on estimated payroll, sales or units sold. If the real numbers come in higher you may owe more, and if they come in lower you may get premium back. Some states set a clock. New York’s Regulation 129 (11 NYCRR 161.10) requires commercial risk policies whose premium is based on estimated exposure to be audited within 180 days after they expire, with limited exceptions.
Audited payroll also feeds your experience rating. Until NCCI receives it, your mod can be issued as contingent and revised later. More on that in what an experience mod is.
What the auditor asks for
Alaska’s Division of Insurance published a list of records an insurer may ask for at a workers’ comp audit. It’s Alaska’s list, but it shows the kind of records an audit runs on:
- Federal payroll tax filings: Form 941 quarterly returns, Form 940, W-2s and W-3, and 1099s and 1096.
- State quarterly unemployment reports.
- Your payroll ledger and any certified payroll reports.
- A list of subcontractors and vendors with the amounts you paid each one, plus their certificates of insurance.
- Your latest general liability audit report.
- Sometimes more: bank statements or check registers, Schedule C or Form 1120 when questions come up.
Subcontractors without insurance
This is where contractors get hurt. Under North Carolina’s rating manual, a contractor has to show its insurer that each subcontractor had workers’ comp in force for the work, for example with a certificate of insurance. For any sub without that proof, the insurer charges additional premium on the contractor’s policy for the sub’s employees, based on the sub’s payroll or, if those records aren’t available, on a share of the subcontract price. New York’s manual works the same way: the sub’s entire payroll for the job is charged under the classification for that work. Collect a certificate of insurance before the sub starts, not at audit time.
Class codes and overtime
The auditor also checks that each employee’s pay sits in the class code that matches the work they actually did. Delaware’s Department of Insurance expects audit bills there to show the payroll reviewed, the class codes applied and the basis for any reclassification.
How overtime is treated depends on your state’s rating manual. New York’s manual and North Carolina’s NCCI-based manual both exclude the extra pay for overtime from premium, but only if your books show overtime separately by employee and in summary by classification. Overtime there means a higher rate for hours beyond the normal day or week, over 8 hours a day or 40 a week, or on weekends and holidays. Both manuals say extra pay for night shifts isn’t overtime.
Field audits and desk audits
How the audit happens depends on the state and the insurer. Oregon’s workers’ comp rule requires a field audit at least once a year for larger policies, with some exceptions; for many smaller policies, insurers field audit a sample and handle the rest with a desk audit or a payroll report from the employer. California requires an annual payroll audit, including an in-person visit, on workers’ comp policies for certain roofing contractors.
If you don’t cooperate
NCCI filed a national Audit Noncompliance Charge rule for most of its states, for policies starting on or after January 1, 2017. Under that filing, if you won’t let the insurer audit, it has the option to add a charge based on your estimated annual premium, but only if the Audit Noncompliance Charge Endorsement (WC 00 04 24) was attached when the policy term started and the insurer made two attempts to get your records. If you later allow the audit or send the records, the charge is refunded or applied to your balance. In a 2018 unpublished decision under Louisiana law, the Fifth Circuit also upheld a final premium built from an estimated audit after the employer didn’t hand over all the requested records.
How to dispute an audit
Start with the insurer: ask for the audit summary and put your objection in writing with the numbers you think are right. If that fails, the next step depends on the state:
- Most NCCI states: NCCI’s Dispute Resolution Process covers class codes, how payroll is split among them and experience mods. You pay the undisputed premium first; unresolved cases can go to a state appeals board.
- California: ask the insurer in writing to review how the rating system was applied. If it rejects the request or doesn’t act within 30 days, you can appeal to the Insurance Commissioner, within 30 days after written notice of the insurer’s action.
- Oregon: send a written hearing request to the Insurance Division; it must arrive no later than 60 days after you received the final audit billing.
- Delaware: appeal to the Delaware Compensation Rating Bureau during the policy period or within 12 months after it ends.
Common questions
Can a premium audit lower my premium?
Yes. If your actual payroll, sales or other exposure came in below the estimate, you may be due a return premium. Delaware expects insurers there to refund overpayments directly instead of crediting future bills, unless you ask otherwise.
How long after my policy ends can the insurer audit?
The standard workers’ comp policy allows audits during the policy period and for three years after it ends. Some states set deadlines; New York requires commercial risk policies based on estimated exposure to be audited within 180 days of expiration, with limited exceptions.
Does overtime count as workers’ comp payroll?
It depends on your state’s rating manual. New York and North Carolina exclude the extra overtime pay from premium if your payroll records show overtime separately by employee and in summary by class code. If your books don’t show it that way, the exclusion doesn’t apply.
What if I ignore the auditor?
Under NCCI’s audit noncompliance rule, the insurer may add an Audit Noncompliance Charge if that endorsement was on your policy when the term started. An insurer may also bill a final premium from an estimated audit, and a federal appeals court upheld such a bill in 2018.
Do I have to pay the audit bill while I dispute it?
To use NCCI’s dispute process you must first pay the undisputed part. Whether the disputed amount can wait depends on your state’s rules, and in New York an insurer may cancel a current policy for nonpayment of audit premium on that policy.
Sources
- Alaska Division of Insurance Bulletin B 15-08 (July 2015): audit of workers’ compensation policies
- Texas Department of Insurance: commercial general liability insurance (premium audit)
- North Carolina Rate Bureau Circular C-15-21 (Nov. 5, 2015), with NCCI filing memorandum Item B-1429: Audit Noncompliance Charge
- North Carolina Rate Bureau Basic Manual, Rule 2: premium and payroll (overtime, subcontractors)
- NYCIRB Workers’ Compensation & Employers’ Liability Manual, Rule V-E: overtime
- NYCIRB Workers’ Compensation & Employers’ Liability Manual, Rule VIII-C: subcontractors
- NCCI: Dispute Resolution Process
- NCCI: ABCs of Experience Rating (mod status, contingent mods)
- Delaware Department of Insurance Bulletin No. 159 / Producer Bulletin No. 38 (Oct. 20, 2025, revised Feb. 5, 2026): payroll audit practices
- Oregon Administrative Rules 836-043-0110: insurer premium audit program (via oregon.public.law)
- California Insurance Code § 11737 (via california.public.law)
- California Insurance Code § 11665 (via california.public.law)
- New York Insurance Department OGC Opinion 01-12-10 (Dec. 7, 2001): premium audits under Regulation 129
- New York Insurance Department OGC Opinion 04-06-17 (June 23, 2004): cancellation for nonpayment of audit premium
- U.S. Court of Appeals, Fifth Circuit: Gulf Coast Workforce v. Zurich American Ins. Co. of Illinois, No. 17-30379 (May 4, 2018, unpublished)
- 11 NYCRR 161.10 (Cornell LII): audit within 180 days after expiration
General information about workers’ compensation and general liability premium audits as of October 2026, not legal or tax advice; your policy, your state’s rating manual and its insurance department’s rules control. Coverage depends on underwriting and the terms, conditions and exclusions of the policy actually issued.