Last reviewed: November 13, 2026 · By Kevin Leipsic, California-licensed insurance broker (CA License #0D72064), The Contractors Resource Center
The short version (TL;DR)
- A workers’ comp premium audit is normal. Your premium starts as an estimate. After the policy ends, your insurance company checks your actual payroll and adjusts the final premium, so you may owe more or get money back.
- Your records decide the result. Payroll reports, quarterly tax filings, time cards by type of work, and your general ledger are what the auditor relies on.
- Subcontractors are the biggest surprise. If you can’t show a sub was licensed and insured, their pay can be counted as your payroll. Collect each sub’s certificate of insurance before they start, and keep it.
- Ghost policies get audited too. A ghost policy excludes the owner, and the audit confirms you issued no payroll and didn’t use uninsured subs.
- Don’t skip the audit. Under California Insurance Code §11760.1, refusing access to your records can lead to a premium of three times the insurer’s estimated annual premium.
- You can dispute the result. Start with a written complaint to your insurer (or the WCIRB). If you still disagree, you can appeal to the California Department of Insurance, usually within 30 days of the written decision.
Get the free California Workers’ Comp Audit Checklist (PDF) →
If you’re a California contractor with employees, a workers’ compensation audit is part of every policy year. It doesn’t mean you did something wrong. It’s how your insurance company turns an estimated premium into a final one. But a messy audit can turn into a big bill, a higher experience mod, or a dispute that drags on for months.
This guide walks you through how California workers’ comp audits work, the documents to have ready, the mistakes that cost contractors the most, and what you can do if you disagree with the result.
This guide covers California workers’ compensation only.
What is a workers’ comp premium audit (and why does it happen)?
Quick answer
- Your premium starts as an estimate. The audit checks your actual payroll after the policy ends.
- You may owe more or get money back. Both are normal.
- Audited payroll also feeds your experience mod.
When your policy starts, your premium is based on estimated payroll for each classification code on your policy. Nobody knows exactly how much you’ll pay your crew over the next 12 months, so the insurance company uses your best estimate.
After the policy period ends, the insurer reviews your actual records. This is the final audit. The auditor confirms:
- How much payroll you actually paid during the policy period
- Which classification code each person’s work belongs in
- Whether any subcontractors or 1099 workers should be counted as your payroll
- Whether owners and officers are included or excluded correctly
If your actual payroll was higher than estimated, or more of it falls in higher-rated codes, you’ll get an additional premium bill. If it was lower, you should get a return premium. Either outcome is normal.
The audit also matters beyond this one bill. Your insurer reports the audited payroll and claims to the Workers’ Compensation Insurance Rating Bureau of California (WCIRB), which uses that data to calculate your experience modification (your “mod”).
Types of workers’ comp audits and when they happen
Quick answer
- Physical audits review your original records, on-site or remotely. Voluntary audits use a signed payroll form.
- Most final audits start after the policy expires. Respond by the date in the insurer’s letter.
- Insurers can ask for your records up to three years after the policy ends.
Physical audit (on-site or remote)
In a physical audit, the auditor reviews your books and original payroll records. According to the WCIRB, a physical audit doesn’t have to be in person. It can be done at your office or remotely, as long as the auditor examines your original records, often by having you share them electronically.
Voluntary audit (signed payroll statement)
Smaller policies may get a “voluntary” audit instead. That usually means a form or questionnaire by mail or email that you complete and sign with your payroll figures. The auditor doesn’t review your original records, but your signed figures still set your premium, so be accurate.
Which audit will you get?
California’s rules (the WCIRB’s Uniform Statistical Reporting Plan) require:
- A physical audit at least once a year for policies with a final premium at or above the threshold set in the Plan.
- Physical audits for many smaller policies with payroll in dual-wage construction classifications, unless the insurer physically audited one of the two prior policy periods.
- A physical audit of the full policy period for every C-39 roofing license holder. Insurance Code §11665 adds an annual payroll audit with an in-person visit to the roofer’s place of business, and lets the insurer charge a surcharge to cover that audit’s cost. (Roofers, see our C-39 roofing workers’ comp page.)
Some larger policies also have interim audits (monthly, quarterly, or semi-annual) during the policy year.
Timing and response windows
The final audit typically starts after your policy expires, when the insurer or its audit firm contacts you to schedule it or sends a payroll form. Each insurer sets its own response deadline in its audit letter, so read every letter and respond by the date shown.
Under Insurance Code §11760.1, your insurer is entitled to access your records during regular business hours during the policy period and for three years after it ends. So an audit question can come up well after the policy year is over. Keep your records.
Workers’ comp audit document checklist
Quick answer
- Gather records for the exact policy period, not the calendar year.
- Payroll, time cards, 941s, DE 9/DE 9C, W-2s, 1099s, your ledger, and a file for every sub.
- Keep your audit file at least three years.
Gather these for the full policy period (not the calendar year, unless they match):
See all 12 documents to gather
- Payroll registers or payroll journals showing gross wages by employee
- Time cards or time records showing daily start and stop times and hours by type of work, especially if employees work in more than one class code
- Federal Form 941 (quarterly federal payroll tax returns)
- EDD Form DE 9 and DE 9C (California quarterly contribution returns and wage reports)
- W-2s and W-3
- 1099s and 1096, plus a list of everyone you paid on a 1099
- General ledger, check register, and cash disbursement records, including any cash payments for labor
- Subcontractor file for every sub: name, CSLB license number, written subcontract, invoices, and a workers’ comp certificate of insurance covering the dates they worked for you
- Overtime records showing the overtime premium separately (more on this below)
- Owner and officer details: who owns what, titles, pay, and copies of any signed exclusion waivers your insurer accepted
- Job descriptions for clerical and outside sales staff, if you want them in those lower-rated classes
- Prior audit reports and any classification notices from your insurer or the WCIRB
How long to keep records: California Labor Code §1174 requires employers to keep payroll records showing daily hours and wages for at least three years. Because your insurer can request access for three years after a policy ends, keeping your audit file at least that long (longer is better) protects you.
Classification codes: the biggest driver of your audit bill
Quick answer
- Each class code has its own rate, and the right code often matters more than total payroll.
- You can split payroll between codes only with time records by type of work.
- No time records means the highest-rated code.
Every California workers’ comp policy assigns payroll to classification codes that describe the work. Each code has its own rate, and construction codes are among the highest. Getting the code right, and keeping records that support it, often matters more than the payroll total.
Splitting payroll between codes
Construction contractors often have employees doing different kinds of work. California’s rules allow you to divide payroll for each separate type of construction work described by a classification, and even divide a single employee’s pay between codes, but only if you keep complete and accurate records backed by original time cards showing the pay by employee and in summary by type of work.
What the rules don’t allow:
- Splitting payroll by percentages, averages, or estimates. The WCIRB’s Plan says payroll may not be divided “by means of percentages, averages, estimates, or any basis other than specific time records.”
- Splitting off work that normally comes with a classification.
If your records don’t support a split, the auditor will put that pay in the highest-rated code that applies to any part of the work. One weak time card system can move your whole crew into your most expensive code.
Dual-wage classifications
Several California construction trades are split into two codes based on the employee’s regular hourly wage: a higher-rated code for lower-wage workers and a lower-rated code for higher-wage workers. To qualify for the lower-rated code, your records need to show each employee’s regular hourly rate and hours. Learn more in our post on dual class codes for California contractors.
Clerical and outside sales
Office staff and outside salespeople may qualify for lower-rated codes, but only if they meet the specific definitions in the rules. Someone who sometimes goes to the job site may not qualify. Keep job descriptions and make sure their duties match.
Tip: track hours by job type every week
Have your crew (or foreman) record hours by type of work on every time card, and set up your payroll system to report pay by class code. That way, the split is already done when the auditor asks.
Uninsured subcontractors: the most expensive audit mistake
Quick answer
- If a sub was uninsured or unlicensed, what you paid them can be charged as your payroll.
- Get a current certificate of insurance and check the license before every sub starts.
- Make sure the policy dates cover every day they work for you.
This is where many California contractors get hit hardest. If a subcontractor doesn’t have their own workers’ comp coverage, or isn’t properly licensed, your insurer may count what you paid them as your payroll and charge premium on it, often in a high-rated construction code.
Why it happens
- Unlicensed workers are presumed to be employees. California Labor Code §2750.5 says a worker doing work that requires a contractor’s license is presumed to be an employee, and holding a valid contractor’s license is a condition of independent contractor status.
- The audit covers uninsured subs. Insurance Code §11760.1 describes the audit as determining payroll of “the employer’s employees and … any of its uninsured subcontractors and the employees of any of its uninsured subcontractors.”
- Insurers say so in their audit guides. For example, California’s State Compensation Insurance Fund tells construction policyholders that if a subcontractor’s certificate of insurance isn’t provided at audit and the sub doesn’t have a valid license, the sub may be considered an employee and premium will be charged based on the trades they perform and the amounts they were paid.
Your subcontractor certificate checklist
Make this a rule for every sub, every job:
- Before they start work, get a current certificate of insurance showing their workers’ comp coverage, plus general liability. Ask to be listed as the certificate holder. (New to these? Read What is a certificate of insurance (ACORD 25)?)
- Check the policy dates. The coverage has to be in force for the entire time the sub works for you. A certificate that expired halfway through the job may not protect you for the rest.
- Check their CSLB license on the Contractors State License Board website. Confirm it’s active, it covers the work they’re doing, and note what workers’ comp information is on file. Save a dated copy.
- Use a written subcontract for every job.
- Calendar the expiration date and request a renewed certificate before it lapses on long jobs.
- Keep everything (certificates, license printouts, contracts, invoices, and payment records) in one folder per sub, by policy year.
- Pay subs by check or electronic payment to their business, not in cash, so payments line up with your records.
What about subs with no employees?
Many small subs are owner-operators with no employees. Until January 1, 2028, many CSLB licensees with no employees can file a workers’ comp exemption with the CSLB instead of carrying a policy. Some classifications can’t use that exemption and must carry workers’ comp whether or not they have employees, including C-8 concrete, C-20 HVAC, C-22 asbestos abatement, C-39 roofing, and D-49 tree service. Starting January 1, 2028, California law ends the no-employee exemption for contractors. (See the 2028 workers’ comp requirement.)
Many owner-operator subs carry a ghost policy, a workers’ comp policy with no payroll that excludes the owner, so they can hand you a real workers’ comp certificate of insurance. Others have only a CSLB exemption on file. Insurers apply their own audit rules to exempt subs, so ask your broker how your carrier treats exempt subs before you hire them, and whether a sub’s ghost policy certificate satisfies your carrier at audit.
Either way, keep proof of the sub’s active license, their certificate of insurance or exemption status, your written subcontract, and their invoices. The safest file shows the sub is licensed, independent, and either insured or properly exempt.
For more ways to protect yourself, see Real-world tips on managing risk with subcontractors.
Ghost policies and workers’ comp audits in California
Quick answer
- Ghost policies exclude the owner, and they get audited too.
- The audit confirms you issued no payroll and used only insured, licensed subs.
- With the CSLB no-employee exemption ending January 1, 2028, more contractors will carry ghost policies.
If you’re a contractor with no employees, you may carry a workers’ comp ghost policy. And yes, ghost policies are audited too. With the CSLB’s no-employee exemption ending, ghost policy audits will become routine for many more California contractors, so it pays to know what the auditor looks for.
What is a workers’ comp ghost policy?
“Ghost policy” is an industry nickname for a real workers’ comp policy written with no payroll, sometimes called an owner-only or zero-payroll policy. Every ghost policy excludes the owner, so it doesn’t pay for the owner’s own injuries. Its main job is to give you a valid workers’ comp certificate of insurance for clients, general contractors, and the CSLB when your license classification or a contract requires one. Learn more in our workers’ comp ghost policy guide for California contractors.
Do ghost policies get audited?
Yes. A ghost policy is priced on the assumption that you have no payroll, so every ghost policy is audited to confirm no payroll was issued during the policy period. If you truly worked alone and only used properly insured subcontractors, the audit should be straightforward.
What a ghost policy audit checks
- No employees: that you didn’t pay anyone wages during the policy period, including part-time help, family members, or “helpers” paid in cash.
- Payments to subcontractors: who you paid, how much, and for what work, usually from your bank statements, general ledger, and 1099s.
- Subcontractor licenses and certificates: whether each sub had an active CSLB license and their own workers’ comp coverage (or a valid exemption) for the dates they worked for you.
- 1099 workers: whether anyone you paid on a 1099 is really an employee under California’s rules (see the ABC test section below).
- Your operations: that the work you did matches the classification on your policy.
Records to keep with a ghost policy
- Proof of no payroll: if you have an EDD employer account, your quarterly filings; otherwise, bank statements and your general ledger showing no wage payments
- A short signed statement or audit form confirming you had no employees, if your insurer asks for one
- Every 1099 you issued, plus invoices and proof of payment for each payee
- A certificate of insurance from every subcontractor showing workers’ comp coverage for the dates they worked for you, or proof of their exemption status, as your carrier requires
- A dated CSLB license printout for each sub and a written subcontract for each job
- Your contracts and invoices, so the auditor can see what work you did
What happens if the audit finds payroll or uninsured subs?
A ghost policy doesn’t protect you from audit charges. If the auditor finds you paid employees, or paid subcontractors who were uninsured or unlicensed, the insurer can treat those payments as payroll and charge premium on them in the applicable class codes, just like any other workers’ comp policy. Depending on the amount, that can mean a large additional premium bill, and your carrier may reconsider whether a ghost policy is still the right fit at renewal.
Worse, if you had an employee and they were hurt, a policy written as owner-only may not reflect your real operations. If you plan to hire anyone, even part-time, contact your broker first so the policy can be changed to cover payroll before that person starts.
Why general contractors ask subs for a workers’ comp certificate
Many GCs, property managers, and HOAs require a workers’ comp certificate of insurance from every contractor on the job as part of their own contract requirements. That’s their rule, not the CSLB’s. One reason is the audit itself: as explained above, if a GC can’t show a sub was licensed and insured, the GC’s own insurer may count that sub’s pay as the GC’s payroll. A sub’s certificate protects the GC at audit time, which is why a ghost policy certificate can help owner-operators win more work.
Why more California contractors will carry ghost policies
California is moving toward mandatory workers’ comp for contractors. Under Business and Professions Code §7125, the CSLB’s no-employee exemption ends on January 1, 2028. After that date, the only remaining exemption is for a joint venture with no employees. CSLB is also required to set up a process by January 1, 2027 to verify that licensees claiming the exemption are actually eligible. For owner-operators who want to keep an active license, a ghost policy is often the most practical way to meet the requirement, so expect ghost policies (and ghost policy audits) to keep increasing.
The Contractors Resource Center’s ContractorGHOST program helps California contractors with no employees compare ghost policy options from insurance carriers. ContractorGHOST is a program name, not an insurance carrier. Get started on our ghost policy page, or read the full California workers’ comp and ghost policy guide.
Independent contractor or employee? AB5, the ABC test, and 1099 workers
Quick answer
- A 1099 doesn’t make someone an independent contractor.
- California uses the ABC test, with a special set of rules for licensed construction subs.
- Unlicensed workers doing licensed work are presumed to be employees.
Auditors look closely at anyone you paid on a 1099. Just because you issued a 1099 doesn’t make someone an independent contractor for workers’ comp.
The ABC test
Under California Labor Code §2775 (the law that came out of AB5 and was later revised), a worker is an employee unless the hiring business shows all three of these:
- A: The worker is free from the business’s control and direction in doing the work, both under the contract and in fact.
- B: The work is outside the usual course of the hiring business.
- C: The worker is customarily engaged in an independently established trade or business of the same kind.
Labor Code §3351(i) applies that definition to workers’ compensation.
The construction subcontractor exception
Labor Code §2781 lets a construction contractor use the older tests (Labor Code §2750.5 and the Borello case) instead of the ABC test for an individual subcontractor, but only if the contractor can show all of the following:
- The subcontract is in writing.
- The sub is licensed by the CSLB and the work is within that license.
- The sub has any required local business license or business tax registration.
- The sub keeps a business location separate from yours.
- The sub has authority to hire and fire people to help with the work.
- The sub takes financial responsibility for their work through insurance, indemnity, bonds, or warranties.
- The sub is customarily engaged in an independent business of the same type as the work.
If you pay unlicensed helpers or “1099 laborers” who work under your direction, expect the auditor to count them as employees. For a deeper look, read classifying employees vs. independent contractors.
Owners, officers, partners, and LLC members
Quick answer
- Whether owners are covered depends on how your business is set up.
- Corporate officers and working partners or LLC members can opt out with a written waiver the insurer accepts.
- Have your ownership details and accepted waivers ready at audit.
Who’s covered at the top of your company affects your payroll, and it’s one of the easiest things to get wrong at audit. California’s rules depend on how your business is set up:
- Corporations: Officers and directors who work for pay are employees (Labor Code §3351(c)). An officer or director who meets the stock ownership requirements in Labor Code §3352(a)(16) can choose to be excluded by signing a written waiver under penalty of perjury. The waiver takes effect when the insurance company receives and accepts it. An officer who is the sole shareholder is excluded unless they choose coverage.
- Partnerships and LLCs: Working partners and LLC members who receive wages regardless of profits are employees (Labor Code §3351(f)). A general partner or managing member can choose to be excluded with a written waiver accepted by the insurance company (Labor Code §3352(a)(17)).
- Sole proprietors: An individual owner usually isn’t covered unless coverage is chosen on the policy.
If an owner is covered, the WCIRB rules set a minimum and maximum amount of payroll that counts for each covered officer, partner, member, or individual owner. These amounts are updated periodically. For a covered individual employer in general contracting, the rate used can’t be lower than the rate for Classification 5606 (construction executive-level supervisors).
At audit, have ready: your ownership breakdown, officer titles, each owner’s pay, and copies of every exclusion waiver along with proof the insurer accepted it. If an owner’s status changed during the year, note the date.
Overtime and other payroll exclusions
Quick answer
- Only the extra (premium) part of overtime can be excluded.
- Your records must show it separately by employee and by type of work.
- Shift differentials don’t count as overtime.
Overtime: only the extra part can be excluded, and only with good records
In California, the premium portion of overtime pay (the extra amount above the regular rate) can be left out of workers’ comp payroll. But the WCIRB rules allow this only when your records show, separately by employee and in summary by type of work, either:
- pay at regular rates for all hours worked, plus the overtime premium portion, or
- pay at regular rates for non-overtime hours, plus total pay for overtime hours.
Example: If an employee is paid time-and-a-half for overtime, one-third of their total overtime pay is the premium portion. That one-third can be excluded if your records meet the rule. The other two-thirds (the regular-rate pay) stays in payroll.
Extra pay for swing or graveyard shifts is not overtime under these rules. If your payroll reports lump overtime in with regular wages and don’t break it out, you could lose this exclusion.
Other items to review
The WCIRB’s rules spell out what counts as payroll (gross wages, salaries, commissions, bonuses, overtime, vacation, holiday and sick pay, and the market value of gifts) and what doesn’t. For example, meals and lodging generally aren’t payroll unless they replace wages or reduce the employee’s wages, and on prevailing wage jobs, fringe benefit amounts paid into an approved fund or administrator generally aren’t payroll (vacation and holiday pay are). Ask your broker or auditor to confirm how your specific pay items are treated before the audit, not after.
Common workers’ comp audit mistakes (and how to avoid them)
Quick answer
- Missing sub certificates, weak time cards, and ignored audit letters cost the most.
- Refusing access can mean a premium of three times the estimated annual premium.
- Never guess or understate payroll.
- Ignoring audit letters or missing appointments. This can lead to a non-compliance premium (see below) and a worse mod.
- No certificates of insurance for subs, or certificates that don’t cover the dates worked.
- Time cards without hours by type of work, which pushes payroll into the highest-rated code.
- Overtime not broken out in payroll reports.
- Cash payments for labor with no paper trail.
- Payroll figures that don’t match between your payroll register, 941s, and DE 9/DE 9C. Auditors compare them.
- Using the calendar year instead of the policy period.
- Signing an audit form without reading it. Review the auditor’s worksheet or summary before you sign and ask questions on the spot.
- Waiting until the audit to fix class codes. If your work changed during the year, tell your broker right away.
- Guessing or understating payroll. Insurance Code §11760 makes a knowingly false statement to reduce workers’ comp premium a crime.
What happens if you don’t cooperate with the audit?
California Insurance Code §11760.1 lets an insurer charge a much higher premium if you don’t give it access to your records:
- If you fail to provide access after the insurer’s third request over at least 90 days, and you have no compelling business reason, the insurer can charge a total premium of three times its then-current estimate of your annual premium, plus the costs of trying to do the audit.
- The insurer must send this notice by certified mail, return receipt requested. The amount becomes collectible 30 days after delivery.
- If you later provide access and the audit is completed, the insurer must revise the premium to match the audit results.
There’s a second cost: according to the WCIRB, when payroll is reported as unaudited because the policyholder didn’t cooperate, that payroll can’t be used in your experience mod, but your claims still are. If corrected audited payroll isn’t received within 60 days of the WCIRB’s notice letter, your mod is calculated without that payroll, which typically pushes it up.
After the audit: reading your results and what comes next
Quick answer
- Check the audit bill line by line, and ask for the auditor’s worksheets.
- If you owe more, contact your insurer or broker quickly about payment.
- Audit results flow into your renewal and your experience mod.
Reading the audit statement
When the audit is complete, you’ll get an audit billing or premium adjustment. Check it line by line:
- Is the policy period correct?
- Is the payroll for each class code right, and does the total match your records?
- Were any subcontractors or 1099 workers added as payroll? Which ones, and why?
- Were owners and officers included or excluded correctly?
- Was the overtime premium excluded?
- Was the correct experience mod applied?
Ask the insurer for a copy of the auditor’s worksheets if the bill doesn’t explain the changes.
Paying an additional premium
If you owe additional premium, contact the insurer or your broker quickly. Some insurers offer payment arrangements, but terms vary by carrier. Unpaid audit premium can lead to collections and can affect your ability to renew or get coverage elsewhere. If you plan to dispute the bill, ask the insurer in writing how it handles payment while the dispute is pending.
How the audit affects your renewal and experience mod
- Your renewal estimate: If audited payroll was much higher than estimated, expect your renewal to use the higher figure. Updating your estimate during the year can help avoid a big audit bill.
- Your experience mod: The WCIRB uses audited payroll by class code to calculate experience mods. Errors in class codes or payroll flow straight into your mod. According to the WCIRB, when an insurer files a corrected report, the current and two prior mods can be revised. To learn more, see how workers’ comp works and ways to save in 2026.
Disagree with your audit? How to dispute and appeal in California
Quick answer
- Start by asking the auditor to correct the error, in writing.
- Next, file a written Complaint and Request for Action with your insurer or the WCIRB.
- Still disagree? Appeal to the California Department of Insurance, generally within 30 days of the written decision.
You have the right to challenge an audit. California law requires every workers’ comp insurer to have a way for you to ask, in writing, for a review of how its rating system was applied to your policy (Insurance Code §11737(f)). If you still disagree after that, you can appeal to the Insurance Commissioner.
Step 1: Try to resolve it informally
Call or email the auditor or the insurer’s premium audit department. Many mistakes (a missed certificate, a typo, a miscoded employee) can be fixed by sending the missing document and asking for a revised audit. Put your request in writing and keep copies.
Step 2: File a written Complaint and Request for Action
- With your insurer: Send a written dispute to the insurer’s designated dispute office. You’ll find the address in a policyholder notice attached to your policy, “Your Right to Rating and Dividend Information,” under “Our Dispute Resolution Process.” The California Department of Insurance also lists insurers’ dispute contacts.
- With the WCIRB: If your issue is with a WCIRB decision (for example, a classification on a WCIRB inspection report or your experience mod calculation), or you believe your policy was written contrary to the WCIRB’s rules, you can start with a written Inquiry to the WCIRB. Your first request for review must be received by the WCIRB within 12 months after the policy expires.
Under Insurance Code §11737(f), if the insurer doesn’t grant or reject your request for review within 30 days, you can treat it as rejected and move to the next step.
In a WCIRB Inquiry, if you disagree with the WCIRB’s decision, you have 60 days to file a written Complaint and Request for Action with the WCIRB. If the WCIRB doesn’t respond to your Inquiry within 90 days, you can go ahead and file one.
Step 3: Appeal to the California Department of Insurance
If you’ve gone through the insurer’s or the WCIRB’s process and still disagree, you can appeal to the Department of Insurance’s Administrative Hearing Bureau using the Workers’ Compensation Insurance Policy Appeal form. You must have filed a Complaint and Request for Action first.
Deadlines to file the appeal (California Code of Regulations, title 10, §2509.46):
- 30 days after the insurer or WCIRB serves its rejection of review, its decision rejecting your complaint, or its decision on reconsideration
- 120 days after you served your Complaint and Request for Action, if the insurer or WCIRB never serves a decision
- 60 business days after you served a request for reconsideration, if no decision is served
Good to know:
- There’s no fee to request a hearing.
- You can represent yourself, and a representative doesn’t have to be an attorney.
- The appeal must be mailed or hand-delivered (the Bureau doesn’t accept fax or email filings), with copies served on the insurer and a courtesy copy to the WCIRB when it isn’t a party.
- Include copies of all correspondence, a clear statement of why the decision is wrong, and your supporting documents.
Common audit dispute scenarios
Scenario 1: “The auditor put my employees in the wrong class code.”
Gather: Time cards showing hours by type of work, job descriptions, contracts or invoices showing what work you actually did, photos of typical jobs, and your payroll report by class code.
Dispute: Ask the auditor to explain the code assignment in writing, then send your records and request a revised audit. If the insurer changed your classification in a way that raises your premium, Insurance Code §11753.1(b) requires written notice of the change and the reasons, and gives you the right to request reconsideration and appeal.
Escalate: File a Complaint and Request for Action with the insurer, or an Inquiry with the WCIRB if the issue is how the classification rules apply (within 12 months after the policy expires). Then appeal to the Department of Insurance within the deadlines above.
Note: If your records didn’t show hours by type of work, the rules require the highest-rated code. You may need better records going forward, not just a dispute.
Scenario 2: “They charged me for a subcontractor who was insured.”
Gather: The sub’s certificate of insurance covering the dates they worked, their CSLB license printout, your written subcontract, and invoices and proof of payment.
Dispute: Send the documents to the auditor and ask for the sub’s payments to be removed. If you don’t have the certificate, ask the sub or their insurance broker for proof the policy was in force during your job.
Escalate: If the insurer won’t remove the charge despite proof of coverage, file a Complaint and Request for Action, then appeal if needed.
Scenario 3: “They counted my 1099 workers as employees.”
Gather: Evidence for each part of the ABC test, or for the construction subcontractor criteria in Labor Code §2781: written contracts, CSLB licenses, business licenses, the worker’s own business location, invoices, proof they hired their own help, and their insurance.
Dispute: Explain in writing why each worker is an independent business, not your employee, and attach the evidence.
Escalate: The WCIRB lists employment status as an issue you can dispute with your insurer. If the insurer rejects your complaint, appeal to the Department of Insurance. Be realistic: an unlicensed worker doing licensed work is presumed to be an employee (Labor Code §2750.5).
Scenario 4: “The payroll numbers are just wrong.”
Gather: Your payroll register, 941s, DE 9/DE 9C, and W-2s for the exact policy period, plus a simple reconciliation showing how the totals tie together.
Dispute: Point out the specific error (wrong dates, duplicated quarters, overtime premium not excluded, an excluded officer included) and ask for a corrected audit.
Escalate: Complaint and Request for Action, then appeal if needed.
Scenario 5: “I got a huge non-compliance bill.”
Act fast: Contact the insurer right away and schedule the audit. Under Insurance Code §11760.1(e), if you provide access after the notice and the insurer completes the audit, the insurer must revise the premium to reflect the audit results.
Gather: All your audit records, plus copies of the insurer’s requests and any proof you responded.
Escalate: If you believe the insurer didn’t follow the required steps (three requests over at least 90 days and certified notice), raise that in a written Complaint and Request for Action.
A year-round routine so your next audit is easy
Quick answer
- Weekly: hours by type of work, plus certificates for new subs.
- Monthly: compare payroll to your estimate and chase expiring certificates.
- Quarterly: reconcile payroll and update your broker.
Every week
- Record hours by type of work on every time card.
- Collect a certificate of insurance and license check from any new sub before they start.
Every month
- Run a payroll report by class code and compare it to your policy estimate.
- Check your sub list for certificates expiring in the next 30 to 60 days and request renewals.
- File the month’s sub certificates, contracts, and invoices in your audit folder.
Every quarter
- Reconcile payroll with your 941 and DE 9/DE 9C.
- Tell your broker if payroll is running well above or below the estimate, or if you’ve started a new type of work.
Before your policy expires
- Confirm owner and officer inclusions and exclusions, and that waivers are on file with the insurer.
- Build your audit folder for the policy period using the checklist below.
Get the free California Workers’ Comp Audit Checklist (PDF)
Two printable pages: every document to gather, a ghost policy section, and a subcontractor certificate of insurance tracker you can use all year.
What’s inside the checklist
- ☐ Policy number and exact policy dates
- ☐ Payroll register for the policy period (gross wages by employee)
- ☐ Time cards with hours by type of work and daily start/stop times
- ☐ Payroll summary by class code
- ☐ Overtime premium shown separately by employee and by type of work
- ☐ Federal 941s for each quarter in the policy period
- ☐ EDD DE 9 and DE 9C for each quarter
- ☐ W-2s/W-3 and 1099s/1096
- ☐ General ledger, check register, and cash disbursement records
- ☐ For each sub: CSLB license printout, written subcontract, invoices, payments, and workers’ comp certificate of insurance covering the dates worked (or proof of exemption)
- ☐ Owner/officer list with titles, ownership, pay, and accepted exclusion waivers
- ☐ Job descriptions for clerical and outside sales staff
- ☐ Prior audit reports and classification notices
- ☐ Ghost policy: proof of no payroll, 1099s, and subs’ certificates of insurance
- ☐ Name and phone number of the person who will meet with the auditor
Frequently asked questions about California workers’ comp audits
Tap a question to see the answer.
What is a workers’ comp audit in California?
It’s your insurance company’s review of your actual payroll, class codes, subcontractors, and owners after the policy period ends. It turns your estimated premium into a final premium, so you may owe more or get a refund.
When does the audit happen?
Usually after your policy expires, when the insurer contacts you to schedule it or sends a payroll form. Larger policies may also have interim audits during the year. Insurers can request access to your records for up to three years after the policy ends (Insurance Code §11760.1).
What records do I need for a workers’ comp audit?
Payroll registers, time cards by type of work, 941s, DE 9/DE 9C, W-2s, 1099s, your general ledger and cash disbursements, and a file for each subcontractor with their license and certificate of insurance.
Can my insurer charge me for my subcontractors?
Yes, if the sub was uninsured or unlicensed. In California, unlicensed workers doing licensed work are presumed to be employees, and insurers can count what you paid uninsured subs as your payroll. Collect a current certificate of insurance before each sub starts.
Do I need a certificate from a sub who has no employees?
Get proof of their active CSLB license and their exemption or coverage status, plus a written subcontract and invoices. Many owner-operator subs carry a ghost policy so they can provide a workers’ comp certificate of insurance. Rules vary by insurer, so ask your broker how your carrier treats exempt subs.
Do ghost policies get audited?
Yes. Every ghost policy excludes the owner and is audited to confirm you issued no payroll during the policy period. Keep bank records, 1099s, and a certificate of insurance or proof of exemption for every sub you paid.
What happens if my ghost policy audit finds payroll?
The insurer can charge premium on any wages you paid, and on payments to uninsured or unlicensed subs, in the applicable class codes. If you plan to hire anyone, contact your broker first so the policy can be changed to cover payroll.
Is overtime included in workers’ comp payroll?
The regular-rate portion is. The extra (premium) portion can be excluded in California, but only if your records show it separately by employee and in summary by type of work. For time-and-a-half, that’s one-third of the overtime pay.
Can I split one employee’s payroll between class codes?
Yes, for construction work, if you keep original time cards showing the pay by employee and by type of work. Percentages and estimates aren’t allowed. Without records, the pay goes to the highest-rated code.
What happens if I don’t respond to the audit?
After three requests over at least 90 days, the insurer can charge three times its estimate of your annual premium, plus audit costs (Insurance Code §11760.1). Your experience mod can also be calculated without that payroll, which usually raises it.
How do I dispute workers’ comp audit results?
Start by asking the auditor to correct the error. If that fails, file a written Complaint and Request for Action with your insurer’s dispute office (or the WCIRB for WCIRB issues). If you still disagree, appeal to the California Department of Insurance’s Administrative Hearing Bureau.
How long do I have to appeal to the Department of Insurance?
Generally 30 days after the insurer or WCIRB serves its written decision. If it never serves a decision, it’s 120 days after you served your Complaint and Request for Action (or 60 business days after a request for reconsideration).
Do I need an attorney to appeal?
No. There’s no fee to request a hearing, you can represent yourself, and a representative doesn’t have to be an attorney.
Does my audit affect my experience mod?
Yes. The WCIRB uses audited payroll by class code to calculate your mod, so payroll or class code errors carry into it. When a corrected report is filed, the current and two prior mods can be revised.
Get your policy and audit file in shape
The best time to prepare for an audit is before your policy year starts. The Contractors Resource Center helps California contractors check that their class codes, payroll estimates, owner exclusions, and subcontractor files line up, so the audit doesn’t bring surprises.
Book a 15-Minute Policy & Audit Review
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Get the free California Workers’ Comp Audit Checklist (PDF) →
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This guide is general information, not legal advice. Workers’ compensation rules, thresholds, and deadlines change, and each insurer has its own audit procedures. Check your policy, your insurer’s notices, and current California law, and consult a qualified professional about your specific situation. Sources include the California Insurance Code, California Labor Code, California Code of Regulations (title 10), the WCIRB, the California Department of Insurance, the CSLB, and the Business and Professions Code.