Workers Comp Audit - How California Contractors Prepare

Quick Answer

At every California workers' comp policy renewal, the carrier audits your actual payroll against the estimate at binding. If you under-estimated, you owe the difference. If you over-estimated, you get a refund. A bad audit bill of $10,000+ is one of the most common surprise expenses for California contractors. Preparation matters. Call (858) 925-9555 for audit prep help.

What Auditors Actually Want

• Quarterly DE 9 / DE 9C forms (California payroll tax filings)
• Payroll register broken down by employee and pay period
• 1099 summary with proof of each sub's own WC certificate (or they become rated payroll)
• General ledger showing total wages by classification
• Cash disbursements journal for any payroll-related cash payments
• Sub COIs with effective dates covering when the sub worked for you

Missing any of these can result in the auditor reclassifying payroll into your highest field rate.

How Bad Audits Happen

• Forgot to add a new hire to the estimate at binding
• Paid subs cash without collecting their COI
• Office staff sat in your field code (auditor may upcode if descriptions are vague)
• Inadequate documentation of light-duty work

How to Prepare

1. Run your DE 9 reports for every quarter covered by the policy.
2. Pull every 1099 sub's COI showing active WC for the period they worked.
3. Reconcile payroll by class code — clerical separate from field.
4. Document any officer exclusion forms.
5. Schedule the audit during a slow week, not while you're chasing deadlines.

What to Do If You Get a Bad Audit Bill

Review the audit bill and supporting records before paying or disputing it. Review every line. Common errors: - Sub payroll added at wrong class code - Missing or misapplied exclusions - Math errors in pay period dates - Misclassified employees

You typically have 90 days to dispute audit findings.

Related: Workers' Comp Cost · Hiring 1099 Subs