Workers' Comp Payroll Audit for California Contractors: What to Expect

Workers' Comp Payroll Audit for California Contractors

Workers' compensation insurance in California is rated on estimated annual payroll. At the end of each policy year, your carrier conducts an audit to compare your actual payroll to the estimate — and adjusts your premium accordingly. Understanding this process helps you avoid surprise bills and prepare the right records.

How the WC Audit Works

1. At policy inception, you estimate your annual payroll by WCIRB class code
2. You pay premiums based on this estimate throughout the year
3. At policy expiration, the carrier sends an audit request
4. You provide payroll records (941s, payroll registers, or tax returns)
5. The carrier calculates actual premium based on actual payroll
6. You receive a bill (if actual > estimated) or a refund (if actual < estimated)

What Records Do You Need for a WC Audit?

• Federal 941 quarterly payroll tax returns
• Payroll registers or ADP/Paychex reports
• 1099s for subcontractors
• Certificates of insurance from all subcontractors (to exclude their payroll)

The Subcontractor Trap

If you hire subcontractors who cannot provide a valid certificate of insurance showing their own WC coverage, their wages may be added to your payroll for audit purposes — significantly increasing your premium. Always collect COIs from every sub before they start work.

Call Asena Capital Insurance Services at (858) 925-9555 for WC audit assistance.