Introduction

Workers’ compensation insurance audits are a routine part of doing business, but for many small businesses, they can be a source of confusion, frustration, and unexpected costs. Every year, countless employers discover they’ve overpaid premiums because of simple errors in reporting, documentation, or employee classification. And don’t forget the small businesses that just don’t even complete their audit.

At AuditWorks, we specialize in helping businesses—and the payroll and accounting professionals who serve them—navigate the audit process accurately and efficiently. Here are the top five mistakes we see most often, and how you can avoid them.

1. Misclassifying Employees and Independent Contractors

One of the most common and costly mistakes is incorrectly classifying workers. Employees and independent contractors are treated differently under workers’ compensation rules, and using the wrong classification code can significantly impact premiums.

How to prevent it:

  • Review all job descriptions and duties regularly.
  • Verify that independent contractors have valid certificates of insurance.
  • If you’re unsure, consult an audit professional; AuditWorks can review classifications before submission to ensure accuracy.

2. Failing to Track Overtime and Bonuses Properly

Many businesses include overtime pay, bonuses, or other nonstandard compensation in their total payroll figures without realizing that some of these payments should be excluded from workers’ comp calculations.

How to prevent it:

  • Keep detailed payroll records separating base pay from overtime, bonuses, and other special payments.
  • Use your payroll system’s reporting features to generate audit-friendly summaries.
  • When in doubt, have AuditWorks review your payroll data to ensure it aligns with insurer requirements.

3. Not Keeping Certificates of Insurance for Subcontractors

If you hire subcontractors or 1099 workers, your insurer may include their pay in your premium unless you can prove they carry their own workers’ comp coverage. Missing or outdated certificates can result in surprise charges at audit time.

How to prevent it:

  • Maintain a file (digital or physical) with up-to-date certificates of insurance (COIs) for all subcontractors.
  • Check renewal dates and request updated certificates before they expire.
  • Let AuditWorks help you organize and verify COIs before the audit begins.

4. Ignoring Changes in Business Operations

When your business grows or changes—new services, job roles, new hires  or work locations—your risk exposure changes too. Many small businesses forget to update their insurer or broker, leading to classification mismatches and premium adjustments at audit.

How to prevent it:

  • Notify your insurer or payroll partner of significant business changes right away.
  • Review your workers’ comp policy annually to confirm your operations and job classifications are still accurate.
  • AuditWorks can help you assess changes and ensure your coverage matches your current operations.

5. Not Reviewing the Audit Results

Too often, businesses assume the audit results are final and accurate. But mistakes happen, and even insurers can misinterpret payroll data or apply the wrong rates. Failing to review your audit can mean missing opportunities for refunds or corrections.

How to prevent it:

  • Always review your audit report for discrepancies.
  • Compare it to your own payroll and classification data.
  • If something doesn’t add up, contact AuditWorks for an independent audit review—we specialize in finding and correcting costly errors.

Conclusion: Turn Your Next Audit Into a Win

Workers’ compensation audits don’t have to be stressful or unpredictable. With accurate data, good documentation, and expert guidance, small businesses can protect their bottom line and stay compliant.

At AuditWorks, we help businesses, payroll providers, and accounting firms prepare for and review workers’ compensation audits with precision and peace of mind. Whether you need audit preparation, data verification, or a full audit review, we’re here to help ensure fairness and accuracy every step of the way.