5 Things Every Business Owner Should Know About Workers' Compensation Insurance Audits
Navigating the world of workers' compensation insurance – and understanding the rules that come with it – is critical for keeping your team protected and ensuring your annual audit goes as smoothly and accurately as possible.
Maintaining risk compliance may seem like just another part of the job as a business owner. However, one area that can catch even the most seasoned employer off guard is the annual audit.
In fact, many small and medium-sized businesses may not realize that every workers' compensation insurance policy is subject to an audit.
Ignoring or mishandling the audit process isn't an option. In today's economy, where accidents happen and compliance matters more than ever, business owners must stay informed to avoid increased premiums, penalties, or even full policy cancellations.
What is a workers' compensation insurance audit?
A workers' compensation insurance audit is a standard review that typically occurs at the end of each policy term. Your insurance carrier conducts it to confirm whether key details, such as payroll estimates and employee classifications, remain accurate.
"In many cases, employers don't realize that they've underreported payroll or misclassified workers," says Greg Lienert, president of Automatic Data Processing Insurance Agency, Inc. (ADPIA®) and vice president of service at ADP®. "The main result is that your business could face unexpected costs that no one wants to see at budget time."
Because premiums are based on estimated payroll, a workers' compensation audit allows your insurance carrier to adjust your costs accordingly. You may owe more, receive a refund, or retain the same premium amount depending on the results.
How are workers' compensation insurance audits conducted?
No two audits are the same. Some are quick and straightforward, while others may require more in-depth participation.
Many factors influence the process, including the size and type of your business and your specific insurance coverage.
Generally, workers' compensation audits are done in one of three ways: over the phone, in person, or online. The auditor (or their representative) will ask you to verify basic business and payroll details and provide supporting documentation. In some cases, you may even be able to self-report required documents either by mail or through a secure online portal.
5 tips to prepare for your workers' compensation insurance audit
"The truth is, navigating the audit process can be daunting, especially for small businesses," explains Lienert. "But no matter your business size, there are a few basic steps you can take to stay ahead of the audit curve."
With that in mind, here are a few helpful tips to consider when preparing for your workers' compensation audit:
1. Keep your records organized and accessible.
When completing your audit, your insurance carrier will likely request documents, such as payroll reports, Forms W-2 and 1099, financial statements, and other certificates. If you've maintained detailed and up-to-date records of your employee hours, wages, and job roles, you'll limit your stress and prevent costly delays in your audit.
2. Evaluate your employee classifications regularly.
Accuracy is crucial when your insurance carrier is assessing your potential business liabilities. Any little mistake or deviation could affect your company's bottom line. For example, if you list a warehouse worker and an office administrator under the same employee classification, it will cause your premium calculations to be incorrect. Therefore, it's important to regularly review and update your employee classifications.
3. Respond promptly to audit requests.
Since your insurance carrier is responsible for conducting your audit, it's a good practice to respond promptly to any requests for information. Treat audit requests with the same urgency as other critical business processes. Set reminders, gather the required documents and ensure everything is submitted by the deadline.
4. Take the consequences of non-compliance seriously.
Missing audit deadlines can result in serious financial and operational outcomes. For instance, if you fail to respond, you may receive a Non-Compliant Audit notification – allowing your insurance carrier to proceed without your input. This could lead to a significantly increased premium, or even non-renewal of your policy.
5. Use available resources to simplify the process.
Businesses are always looking for ways to reduce administrative burdens and make operations run smoothly. Regarding workers' compensation and the annual audit, consider leveraging professional programs that can calculate and pay premiums based on real-time payroll data.
For example, ADP's Pay-by-Pay® Premium Payment Program could be a viable option to manage your workers' compensation needs and help you stay compliant in the audit process.
"Remember, workers' compensation audits aren't optional – but they don't have to be painful," concludes Lienert. "The key is to stay informed, stay responsive, and use reliable partners to help you streamline the process."
To learn more about protecting your employees and your business, check out ADP® affiliate, Automatic Data Processing Insurance Agency, Inc. (ADPIA®), for the latest in workers' compensation insurance.
Automatic Data Processing Insurance Agency, Inc. (ADPIA®) is an affiliate of ADP, Inc. All insurance products will be offered and sold only through ADPIA, its licensed agents or its licensed insurance partners; One ADP Blvd. Roseland, NJ 07068. CA license #0D04044. Licensed in 50 states. Certain services may not be available in all states with all carriers. Some carriers may charge an additional fee for services. Clients must be using ADP's tax filing service to take advantage of Pay-by-Pay. This information is not intended as tax or legal advice. If you have any questions, contact a tax or legal professional. The ADP logo, ADP, ADPIA, and Pay-by-Pay are registered trademarks of ADP, Inc. All other trademarks are the property of their respective owners. Copyright © 2025 ADP, Inc.
