A payroll audit is a routine, yet essential event in the life of your workers’ compensation insurance policy. All insurers are required to audit their policyholders. Some policies are audited every year, while smaller employers may be audited at less frequent intervals. To understand what an audit is all about, let’s take a look at the considerations that determine the premium you pay.
California’s workers’ compensation system categorizes employees into more than 500 job-specific classifications. Insurance Company assigns each classification a rate reflecting the risk for that type of work. Your premium—the price of your policy—depends on three main factors:
- Your employees’ job classifications and the rates insurance company charges for them.
- Your employees’ earnings.
- Any premium modifications for which you qualify.
We rely on a year-end audit to verify exact payroll and classification information for all employees. With this important audit information, State Fund then:
- Ensures that our policyholders are charged the correct premium for their policy term. When all policyholders pay the premium amount that accurately reflects their payroll and risk, it effectively levels the playing field for you and other businesses in your industry.
- Updates any details that may affect a policyholder’s coverage and rates.When you first obtained your policy, we reviewed your operations and assigned certain job classifications. Your auditor will verify this information and make note of any changes to your operations, locations, ownership, or employees’ job duties. You may request a copy of the audit.
- Complies with important regulatory requirements of the WCIRB. The Workers’ Compensation Insurance Rating Bureau (WCIRB) collects insurer data on premiums and claims and uses this information for two purposes: (1) creating advisory rates, and (2) calculating your experience modification (if applicable), which is a premium-adjustment factor that statistically reflects your comparative safety record.