If you're a roofing contractor and you've never been through an insurance audit, you will be. Workers compensation and general liability policies are audited by the carrier after the policy period ends to reconcile the estimated exposures (payroll and revenue) you reported at inception with the actual numbers. For roofers, audits are particularly consequential because roofing class codes carry some of the highest rates in the insurance industry — small discrepancies in payroll or revenue produce large swings in premium.
What Triggers an Audit
Every workers comp and most GL policies include an audit provision. Audits are a standard part of the policy contract, not a punitive action. However, certain situations increase the likelihood of a thorough, in-person audit versus a simple mail or phone audit:
- Premium size: Policies with annual premiums over $10,000-$15,000 are more likely to receive in-person audits. Since most roofing operations exceed this threshold on workers comp alone, roofers get audited frequently.
- Significant discrepancy between estimated and actual exposure: If you estimated $500K in revenue and actually did $900K, expect scrutiny.
- New business: First-year policies often receive closer audit attention since there's no history to benchmark against.
- Prior audit disputes: If you've contested previous audits, the carrier may escalate to an in-person audit the next time.
- Industry risk: Roofing is a high-premium, high-risk class. Carriers audit roofing accounts more aggressively than lower-risk trades.
What Auditors Look For
The auditor's job is to verify two things: how much payroll you ran under each class code (for workers comp) and how much revenue you generated (for GL). Here's specifically what they review:
Payroll Records:
- Quarterly payroll tax returns (941s or state equivalents)
- Individual employee earnings records
- Year-end W-2s and W-3 summary
- Payroll journal or register showing gross wages by employee
- Overtime records (important because only the straight-time portion of overtime is included in workers comp payroll — the premium portion of overtime pay is excluded)
Subcontractor Records:
- 1099s issued to subcontractors
- Certificates of insurance from each subcontractor
- Subcontractor agreements or contracts
- Critical: Any subcontractor who does NOT have their own workers compensation coverage will have their payments added to YOUR payroll for audit purposes. This is one of the most common and expensive audit surprises for roofing contractors.
Revenue Records (for GL audit):
- Federal tax returns showing gross receipts
- Profit and loss statement
- Sales records or job logs
- Contract summaries
Class Code Verification:
- Job descriptions for each employee
- Breakdown of time spent on roofing vs. non-roofing activities
- Evidence supporting any payroll allocated to lower-rated codes (sales, clerical, estimating)
How to Prepare for an Audit
Audit preparation should be ongoing, not something you scramble for when the auditor calls. Here's how to stay ready:
Maintain clean payroll records year-round. Separate your payroll by job function from day one. If you have employees who split time between roofing (class code 5551) and non-roofing duties (estimating, sales, shop work), keep a time log or use your payroll system to track the split. The auditor will only allow payroll to be moved to a lower-rated code if you have documentation — verbal claims don't count.
Collect subcontractor certificates before they start work. Every subcontractor who steps on your jobsite should provide a certificate of insurance showing current workers comp and GL coverage. File these certificates by subcontractor and have them ready for the auditor. If a sub's certificate expired during the project, get a renewal certificate that covers the gap.
Track your 1099 payments separately. Keep a spreadsheet or accounting system report showing each subcontractor, their total payments for the year, and whether they carried workers comp. The auditor will cross-reference your 1099s against your sub certificates. Any mismatch means added payroll on your audit.
Reconcile your revenue estimates quarterly. Don't wait until audit time to discover that your actual revenue was 50% higher than your estimated revenue. If your business is growing faster than projected, contact your agent mid-year to adjust your estimated premium. This prevents sticker shock at audit time and gives you time to budget for the additional cost.
Common Audit Surprises for Roofers
Uninsured subcontractor payroll: This is the number one audit problem for roofing contractors. You hired a crew of three guys through a sub, paid them $80,000 over the year, and they didn't carry workers comp. The auditor adds that $80,000 to your roofing payroll at the class 5551 rate. At $25 per $100 of payroll, that's an additional $20,000 in workers comp premium you didn't expect.
Owner payroll included when it shouldn't be (or excluded when it shouldn't be): Whether owner payroll is included in the audit depends on your state and entity type. In some states, LLC members are automatically included in workers comp; in others, they can be excluded. If your policy was set up assuming owner exclusion but the auditor determines the owner should be included under state rules, the owner's compensation gets added to the audit payroll.
Revenue growth outpacing estimates: If you estimated $600K in revenue and your GL policy was priced accordingly, but you actually did $1.1M, the GL audit will generate an additional premium charge proportional to the additional revenue. This can be thousands of dollars.
Misclassified employees: If the auditor determines that an employee classified under a lower-rated code (sales, clerical) actually spent significant time on roofing jobsites, their payroll will be reclassified to code 5551. The documentation burden is on you to prove the split — without time records, the auditor will default to the highest applicable rate.
How to Dispute Audit Results
If you believe the audit results are incorrect, you have options:
1. Request a detailed audit worksheet. The auditor should provide a breakdown showing exactly how they calculated each payroll category and revenue figure. Review this line by line against your records.
2. Provide additional documentation. If the auditor didn't have access to records that support your position — such as sub certificates that weren't available at the time, or time logs showing employee job function splits — provide them and request a revision.
3. File a formal dispute with the carrier. Most carriers have an audit dispute process. Submit your disagreement in writing with supporting documentation. The carrier will assign a supervisor to review the dispute.
4. Involve your agent. Your insurance agent should advocate for you during audit disputes. An experienced agent who understands roofing operations can help explain legitimate classification distinctions and present your case to the carrier's audit department.
5. Contact your state's workers comp authority. If you believe the auditor misclassified your operations or misapplied state-specific rules, you can appeal to your state's workers compensation rating authority (NCCI in most states, or the state rating bureau in monopolistic states).
The best audit is a boring one — no surprises, no disputes, no additional premium. That only happens when you maintain clean records throughout the year, verify subcontractor insurance before they work, and communicate with your agent when your actual exposure deviates from your estimates. Treat the audit as an ongoing process, not a year-end event, and the numbers will take care of themselves.