You got an extra bill because your real payroll turned out bigger than the estimate your price was based on. That year-end check of your real payroll and sales is the premium audit, and it settles the difference either way. The usual causes are payroll growth, subs who could not show proof of coverage, owner pay that was never excluded, and employees moved to a higher rate. Who this is for: contractors holding an audit statement with a balance due and no clear explanation.
The short version
- Your premium was a deposit on an estimate. The audit compares it with real payroll and bills or refunds the difference.
- Uninsured subcontractors are the biggest surprise. Their cost is charged as your payroll, rated at the category for their work.
- Owner pay is charged when the insurer had no exclusion form on file, even if you meant to exclude yourself.
- If your records do not show who did which kind of work, all of that employee's pay goes into your highest priced category.
- You can dispute an audit. The fix is records, not argument.
What is the audit actually comparing?
Your premium was calculated on estimated payroll. After the year ended, the auditor asked for the real numbers: payroll records, tax reports, payments to subcontractors, and proof of their coverage. The statement rebuilds the premium and subtracts what you already paid. See understanding your premium audit.
What are the most common reasons for an extra bill?
| Reason | Why it adds premium |
|---|---|
| Payroll grew | You hired, gave raises, or had a busy year. Every extra $100 is charged at your rate. |
| Uninsured subcontractors | In most states a sub who cannot show workers comp is charged as your employee, rated at the category for that sub's work. With no payroll records from the sub, the auditor charges on the full amount you paid, and a reduced share only where the sub supplied the materials or equipment with operators. |
| Owner pay charged | The insurer had no exclusion form on file, so your payroll was rated like any employee. |
| Employees moved to a higher category | Your records did not show hours by type of work, so all that pay went to your highest priced work. |
| Overtime not separated | In most states the extra half of time-and-a-half pay does not count, but only if your records show it. |
How do I read the audit statement?
Look for a table with one row per job category (the class code). Each row shows the audited payroll, the rate, and the premium. Below that come your claims multiplier, credits, and the flat charges your state adds.
Check three things. Does the payroll in each category match your records? Is there a category you do not recognize? And is there a line for uninsured subs or contract labor? That is where most surprises live.
Can I dispute the audit?
Yes. Your window comes from your policy and your state's rules, commonly 30 to 60 days from the statement, and some states set their own deadline and appeal route. The payment due date on the statement is not the dispute deadline. Send the records that prove your case:
- Certificates of insurance for subs, showing workers comp in force on the dates you paid them.
- Payroll records showing the extra half of time-and-a-half pay on its own line (your payroll service calls this overtime premium pay).
- Time records showing hours by type of work, if payroll moved to a higher category.
- The owner exclusion form, if you filed one and it was not applied.
- Job descriptions and a floor plan, if office staff paid the field rate.
Ask for a revised statement. If the insurer will not move on a job category, the group that writes the job category rules for your state (the rating bureau) can review it. North Dakota, Ohio, Washington, and Wyoming have no bureau: the state fund sets the class and you appeal through the state agency. Disputes that are not about the category go to your state insurance department.
What happens if I do not pay?
Take the bill seriously even while you dispute it. Unpaid audit premium can get your policy cancelled and the balance sent to collections, and other insurers ask about unpaid premium before they quote. If the number is right, ask for a payment plan.
How do I stop this from happening next year?
- Check this year's estimate. Insurers carry the audited numbers forward, and they may now be wrong.
- Collect proof of coverage from every sub before the first check. See what insurance a subcontractor needs.
- File your owner exclusion or election form and keep a copy.
- Ask your payroll service to show that extra half of overtime pay on its own line.
- Ask about pay-as-you-go, which bills on real payroll each pay period. The workers comp overview explains it.
What this looks like in real life
Illustrative example. It is typical of what we see and is not a promise of how any specific situation would be handled.
The setup: A remodeling contractor in Massachusetts, set up as a corporation, estimated $350,000 of payroll; real payroll came in at $410,000. He also paid $70,000 to subcontractors. Two of them, paid $45,000 between them, never sent proof of coverage. His own officer pay was on the books and no exemption affidavit had been filed. For this illustration the carpentry rate is $8.00 per $100, his officer pay of $60,000 sits inside the state's officer minimum and maximum, and the claims multiplier is 1.05.
What went wrong: The audit statement arrived with a balance due of about $13,900 and a 30-day payment date.
What it cost: Illustrative math: $60,000 of extra payroll at $8.00 added $4,800. The two uninsured subs added $45,000 of payroll, or $3,600. His officer pay added $4,800. With the 1.05 multiplier, about $13,900.
The fix: The broker found both subs had carried workers comp all along, and their insurers issued certificates for the period, so the $3,600 came off. The officer pay stood: a Massachusetts officer exemption needs at least 25 percent ownership and a filed affidavit, and does not reach a past year.
Frequently asked questions
Q: Why did I get an extra workers comp bill after my audit?
Because the audit found more payroll to charge than your policy was estimated on. The usual causes are payroll growth, subs without proof of coverage, owner pay with no exclusion on file, or employees moved to a higher category.
Q: How long do I have to dispute a workers comp audit?
It depends on your policy and your state, commonly 30 to 60 days from the statement date. Some states set their own deadline and appeal route, so confirm yours.
Q: Can I get a subcontractor's certificate after the audit?
Yes, if the sub actually had workers comp when you paid them. Ask the sub or their broker for a certificate showing the policy dates. If the coverage was real, the auditor will usually remove that payroll.
Q: Can I be charged for a sub whose policy lapsed halfway through the job?
Yes, for the part of the job after the policy ended. Proof of coverage only covers the dates printed on it, so ask for fresh proof whenever a sub's policy renews.
Q: Why was my own pay charged when I never wanted to be covered?
In many states owners of corporations are covered unless the insurer has an exclusion form on file. If no form was filed, your payroll is charged for that year. File it now so it does not repeat.
Q: Do I have to let the auditor see my payroll records?
Yes. Cooperating with the audit is a condition of the policy. If you refuse, the insurer can estimate your payroll at a high figure, and that bill is harder to reverse.
How Morrow helps
Morrow is a licensed independent commercial insurance brokerage that works with contractors and trades every day. Going through a contractor's audit statement line by line, and getting the wrong lines removed, is work we do every audit season.
- Free contract review. Send us the contract or bid documents and we mark up the insurance section in plain English, whether or not you buy anything from us.
- Free, instant certificates. Clients issue their own certificates of insurance online in about a minute, any hour, any day, at no charge.
- Markets you cannot reach online. One application, shopped across many insurance companies for general liability, workers comp, auto, umbrella, and pollution coverage.
One more thing. This article is general information and is not legal advice or a statement of coverage. Your contract and your policy wording control in every case. Requirements vary by customer, by state, and by insurance company, so have a licensed advisor review your own contract and your own policy before relying on any of it.
Last updated: Reviewed by the Morrow commercial lines team. Last updated September 2026.