A premium audit is a review conducted by your insurance company, typically at the end of your policy period, to verify that the actual exposures during the policy term match the estimates used to calculate your initial premium. For workers compensation, the audit examines your actual payroll by classification code. For general liability, it reviews your revenue, subcontractor costs, or payroll depending on your rating basis. If your actual exposures exceeded the estimates, you owe additional premium; if they were lower, you receive a return premium.
Roofing contractors frequently face significant audit adjustments because roofing is a seasonal and project-driven business with fluctuating payroll and revenue. If you estimated $500,000 in payroll when your policy started but actually ran $750,000 due to a busy storm season, your audit will produce an additional premium bill that can be substantial given roofing's high workers comp rates. Conversely, a slow year may result in a return premium.
To avoid audit surprises, track your payroll by classification code throughout the year and report it to your agent or carrier as required. Many carriers offer monthly or quarterly self-reporting options that adjust your premium payments in real time, smoothing out the year-end audit adjustment. Keep your overtime records accurate because overtime premium pay can be excluded from auditable payroll in most states, reducing your exposure basis. Maintain clear records separating employee payroll from payments to subcontractors, as sub payments with proper certificates of insurance are typically excluded from your audit. Poor record-keeping during an audit almost always results in higher premiums.