Understanding Workers' Compensation Premium Audits

Remuneration and payroll

The initial premium you pay for a worker’s compensation policy is based on your estimated annual remuneration (payroll) multiplied by the rate of your assigned classification. Classifications and associated rates are assigned based on your business operations and exposures. In general, classifications assigned to business operations that have a greater chance for frequent or severe injuries/accidents have a higher rate than business operations with less risk. For example, a roofing company will have a much higher rate than an accounting firm. Remuneration is commonly referred to as ‘payroll’ and is defined as money or substitutes for money (monetary value) paid to others for labor or services.

Calculating your final premium

At the end of the policy term, an audit is necessary to determine the actual remuneration paid to your employees or others for labor or services. The actual payroll is used to calculate and adjust your final audited premium. If your original payroll estimates were high, you will receive a premium refund, or if your original estimates were low, you will receive a bill for the additional premium you owe. This process is similar to how your state and federal taxes work.