The Patch Playbook | Edition 008
Workers’ Comp Audits: Why That Big Bill Showed Up and How to Avoid It Next Time
Few things ruin a good quarter like an unexpected workers’ comp audit bill.
You finish a clean policy year. No major injuries. No losses. You think you’re in the clear. Then the audit hits and suddenly you owe $20,000 or more.
What happened How is it legal And how do you keep it from happening again
Let’s break it down
First — How Workers’ Comp Premiums Actually Work
When you bind your policy, your premium is based on estimated payroll by class code But your final cost is based on actual payroll
At the end of the policy term, the insurance company audits you to figure out:
If your estimates were low or if your subs didn’t have the right insurance, your final bill is going up
The 5 Biggest Reasons Oilfield Companies Get Crushed at Audit
1. Underreported Payroll Estimates
You told the carrier your payroll would be $850,000 Turns out it was $1.2M
That’s not a penalty. It’s just math. You pay premium on the difference
Fix it: Be conservative with estimates, especially in growth years Track monthly payroll and alert your broker if you’re trending high
2. Misclassified Employees
A shop foreman got classified under clerical A welder got dropped into a lower-risk code The payroll split didn’t hold up
Class codes drive your rates. And in oilfield work, the difference can be huge
Fix it: Review class codes with your broker each year Keep job descriptions on file If payroll is split between duties, document it carefully with timesheets
3. Subcontractors Without Valid Workers’ Comp
You paid $200K to subs. You thought they had their own coverage The auditor asked for certificates and they were expired or missing
Now their payroll gets added to your comp audit
Fix it: Collect and track current COIs for every 1099 or sub Make sure their workers’ comp policy is active and matches their business type No certificate means their payroll gets added to yours
4. Owner-Operator or Officer Inclusion
You didn’t opt yourself out of coverage Or you did, but didn’t file the exclusion form with the state or carrier
Now your payroll is being charged at full comp rates
Fix it: If you want to exclude owners or officers, make sure the proper waiver form is filed and confirmed Keep a copy for audit season
5. Bad Recordkeeping
You can’t verify payroll by class code Your sub payments don’t have matching COIs The auditor asked for documentation and it’s incomplete
When in doubt, they default to the higher rate
Fix it: Keep organized payroll reports by employee and class code Save COIs and endorsement pages for all vendors Store everything in one place so you’re not scrambling when audit season hits
Bonus Tip — Don’t Ignore Audit Notices
It might just look like another piece of mail But if you ignore the audit request, the carrier will estimate your final premium — and they never estimate low
If you still don’t comply, they can send it to collections
Fix it: Set reminders for audit due dates Respond quickly and completely Ask your broker for help if the auditor’s questions don’t make sense
Bottom Line
Most audit surprises aren’t surprises They’re just the cost of bad prep
If you treat your comp policy like “set it and forget it,” you’re likely leaving money on the table or handing it over at the end of the year
But if you build in good habits like clean COIs, correct class codes, and updated payroll, you’ll stay in control and avoid that big post-policy gut punch
Want to get ahead of your next audit
I help oilfield service companies set up simple systems to prevent these issues before they happen
Send me a message here or email me at caden@bralyinsurance.com or schedule a meeting at my booking link below.
Coming Next in The Patch Playbook How to Tell a Better Risk Story to Underwriters and Pay Less for the Same Coverage
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