How a Michigan Contractor Cut a Surprise Workers Comp Audit Bill in Half
Sam's List Editorial | 2026-08-06
How a Michigan Contractor Cut a Surprise Workers Comp Audit Bill in Half This is an illustrative composite based on patterns that recur across trades businesses. It does not describe a specific client, the figures are illustrative rather than actual, and nothing here should be read as a promise of a similar result. The envelope arrives in the spring and it does not look important. Then the owner opens it and the workers comp audit bill is roughly triple what the estimated premium was, due in thirty days. The first assumption is almost always that the number is simply owed. That assumption is usually wrong, and it is expensive, because the dispute window is short and it starts running the day the invoice is issued. Here is how a Detroit-area specialty contractor with about twenty-five people worked through one. What a Workers Comp Premium Audit Actually Does A workers compensation policy is priced at the start of the year on estimated payroll. At the end of the year, the carrier trues that estimate up against what actually happened. The calculation has three inputs and nothing else: how much payroll there was, which class code each dollar of it belongs to, and whether any subcontractors have to be treated as your payroll because they could not prove their own coverage. That is the whole thing. Which means a shocking audit bill is not a mystery. It is one of three inputs being wrong, and all three are records problems rather than insurance problems. Finding One: Everyone Was Priced as a Field Employee The contractor's payroll export produced a single total. Gross wages, one number, one company. Workers comp rates are set per hundred dollars of payroll by class code, and the spread between a clerical office code and a field trades code is large. When payroll arrives as one undifferentiated total, the auditor has little choice but to apply the governing field classification to all of it. So the office manager, the estimator, and the part-time bookkeeper were all being priced as though they spent their days on a job site. Splitting payroll by class code is a payroll-system configuration task, not an argument. The relevant point for the audit is that the split has to be supported by records, meaning job descriptions and time detail that show who did what, not a spreadsheet built after the invoice arrived. Finding Two: The Certificates Existed, in an Email Folder Under most states' rules and most carrier contracts, a subcontractor who cannot produce evidence of workers compensation coverage gets charged back to the hiring contractor's payroll. The logic is...
