Understanding Your Audit: Why It Matters, How It Helps

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 annually, while the smallest employers may be audited at less frequent intervals. To understand why, 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. State Fund 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 State Fund charges for them.
• Your employees’ earnings.
• Any applicable 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 all policyholders are charged the correct amount of premium for their policy term. By applying the rules uniformly, State Fund assures that all policyholders pay the appropriate premium for their level of risk. This uniform and objective treatment helps achieve the desirable outcome of a level playing field for you and your competitors.
• Updates any details that may affect a policyholder’s coverage and rates. When you first obtained your State Fund 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 the data-gathering requirements of the WCIRB. The Workers’ Compensation Insurance Rating Bureau (WCIRB) collects insurer statistics on premiums and claims and uses this information for two purposes: (1) creation of advisory rates, and (2) calculation of your experience modification (if applicable), a premium-adjustment factor reflecting your comparative safety record.