Class code and payroll audit

Workers’ compensation premium is payroll multiplied by a rate set for each classification code. Misassigned payroll therefore overcharges directly and permanently. An audit verifies that every dollar of payroll sits under the classification describing the work actually performed, and challenges the ones that do not.

Classification is not a filing detail. It is one of the two variables that produce the premium, and unlike the rate it is something an employer can actually contest. A single classification carried forward incorrectly from a prior policy can cost more over a few years than every other line item in the insurance budget combined.

Errors persist because nobody has an incentive to find them. The classification arrives on the first policy, gets copied at each renewal, and survives changes in what the business actually does. A distributor that stopped doing its own delivery five years ago may still be reporting drivers. A manufacturer that automated a line may still be paying the manual rate for it.

The year-end audit is where an unprepared employer loses. The auditor’s job is to true up payroll against what was estimated, and in the absence of clean records showing how payroll splits across classifications, the whole amount lands in the highest-rated code present. Records assembled before the auditor arrives are worth more than any argument made after.

Overtime, subcontractors and owner payroll each follow their own rules, and the rules differ by state. Overtime is often reportable at straight time. Uninsured subcontractors can be charged to your policy as if they were employees. Owner and officer payroll is subject to state-specific minimums and maximums rather than actual pay.

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