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Understanding the Premium Audit Process

A premium audit is an annual review of a business operation’s records to ensure its workers’ compensation insurance coverage is accurate and the premium is priced correctly. Premium calculations are based on the projected payroll estimates and other information provided by the business at the beginning of the policy term. During the premium audit process, initial projections are compared to end-of-term payroll to confirm that coverage is accurate and to calculate the final premium. If there are any changes or discrepancies, the premium will be increased or decreased accordingly. A premium audit is performed on every policy and is typically performed after a policy expires but may be completed at any time during the policy period.



A CompSource Mutual premium auditor schedules an on-site visit to conduct a review of a policyholder’s records at the policyholder’s place of business or at the office of the policyholder’s CPA or bookkeeper.


CompSource Mutual mails the policyholder a Premium Audit Packet to complete and return with the required documents.


A CompSource Mutual premium auditor schedules a quarterly or semiannual on-site visit to conduct a review of records during the course of the policy period.


A CompSource Mutual premium audit consists of five stages.


The entrance interview begins the audit process and allows the auditor to gather basic information about a policyholder’s company such as:

  • Company contact information, address, phone, fax, email and web address
  • Bookkeeper contact information
  • Changes about the company during the policy period
  • Additions or deletions to commonly owned businesses
  • Officer information such as name, title, duties and ownership
  • Average number of employees
  • Description of operations

We may request a tour of the policyholder’s facility or access to any items that will assist the auditor in understanding business operations.


The premium auditor will review a policyholder’s records and documentation such as tax reports, payroll records, subcontract ledgers or journals, general ledger, check registers, certificates of insurance and owner-operator documentation.


It is important to have someone who is knowledgeable about the company, its payroll and similar records available during the premium audit in case the auditor has questions or needs further clarification on an issue. Having the needed records and personnel available at the audit helps facilitate the audit process.


Upon completing the premium audit process, the auditor will review the audit results with the policyholder. This is an opportunity to clarify any issues or concerns identified during the audit. The auditor can answer any questions, as well as offer guidance on recordkeeping, audit requirements or possible policy changes. Enlist the auditor’s help in clarifying any items that are unclear about the premium audit or the process.


Upon completion of the premium audit, CompSource Mutual will mail the policyholder a Premium Audit Summary showing the final premium calculation for the policy term. This final premium audit summary is not an invoice and may not reflect premiums paid to date. Always refer to billing invoices to verify premiums owed to or refunded by CompSource Mutual.


Under the terms of the insurance contract and to verify the information for the premium audit, a policyholder must provide the auditor with access to any records necessary to complete the premium audit.


Tax reports

  • OESCs and 941s for policy period
  • 1040-Schedule C
  • 1096s and 1099s
  • Tax returns

Payroll records

  • Name of employee on payroll records
  • Gross wages for policy period
  • Overtime (separated out)
  • Job duty (classification if known)
  • Tips, allowances, mileage, etc.
  • Summary of monthly gross payroll

Subcontract ledgers and journals

General ledger

  • Chart of accounts for computerized ledgers

Check register

  • Cash disbursements
  • Check stubs
  • Bank statements including photocopies of checks

Certificates of insurance from subcontractors

  • Covering the time period in which the job was performed

Owner-operator documents required, if applicable

  • Copy of commercial driver’s license
  • Copy of registration or cab card
  • Copy of business auto insurance policy


Policy premium is based on the amount of payroll or remuneration paid for services performed by employees, uninsured subcontractors or casual labor. Remuneration means money or substitutes for money. Payroll is one type of remuneration. The following list details remuneration examples for premium audit calculation purposes.

  • Employee wages
  • Commissions, bonuses, holiday, vacation and sick pay
  • Overtime (straight time rate)
  • Tax-deferred payments (cafeteria or 401(k) plans)
  • Rental value of a home or apartment furnished by the employer
  • Allowances
  • Tools, meals, utilities, housing and/or any other substitutes for
  • Per diem
  • Payment to employees on any basis other than time worked
    (piece work, profit sharing for incentive plans)
  • Payments to uninsured contractors and subcontractors
  • Payments to miscellaneous laborers
  • Expense reimbursements that cannot be substantiated as a valid
    business expense


Certain officers, owners, partners or members are automatically excluded from coverage. Their payroll will not be included for purposes of the premium audit. Election for coverage can be requested, in writing, at any time during the policy period with CompSource Mutual.


Sole proprietors or members of a partnership are excluded from coverage under Oklahoma’s Workers’ Compensation Code. Sole proprietors
and partners may elect to be included for coverage through a policy endorsement. For those who choose a policy endorsement, a flat annual amount is assessed by CompSource Mutual for premium calculation purposes regardless of the amount actually earned.


Stockholder-employees owning 10 percent or more of the company’s stock are excluded from coverage under Oklahoma’s Workers’ Compensation Code. However, they can elect to be covered and be added to the policy by an endorsement. When stockholder-employees elect to be covered, their payroll for determining premium will be subject to CompSource Mutual’s payroll minimum and maximum values in effect at the inception date of the policy.

Stockholder-employees owning less than 10 percent are considered employees and are automatically included in coverage. Their actual payrolls earned will be used for determining the final premium.


Limited liability members owning 10 percent or more of the capital of the limited liability company are excluded from coverage under Oklahoma’s Workers’ Compensation Code. However, a limited liability member may elect coverage and be added to the policy by an endorsement. If election of coverage is requested, the payroll assigned for premium and audit calculation purposes will be subject to CompSource Mutual’s flat annual amount, regardless of the amount actually earned.

Limited liability members owning less than 10 percent of the capital of the limited liability company are considered employees and are automatically included in coverage. Their actual payrolls earned will be used for premium and audit calculation purposes.


Oklahoma’s Workers’ Compensation Code requires employers to provide coverage for employees, as well as the employees of any uninsured contractors and subcontractors hired. CompSource Mutual must collect a premium for anyone who is considered an employee or an employee of an uninsured contractor or subcontractor.


To avoid being charged premium for payments made to the contractors whose services are utilized during the policy period, the policyholder must retain and provide the following:

  • Proof of a valid workers’ compensation insurance policy issued to the contractor or
  • Proof that the individuals are exempt from Oklahoma’s Workers’ Compensation Code


  • If the policyholder is unable to provide the required documentation, then the contractor or subcontractor and his/her employees will be considered the policyholder’s employees under Oklahoma’s Workers’ Compensation Code. The policyholder will be charged a premium to cover the work performed by the uninsured contractor or subcontractor and his/her employees.
  • If documents provided by the policyholder are determined to be invalid or not applicable, then the policyholder will be charged an additional premium to cover the exposure.

Need more information? Contact our Premium Audit team at (800) 347-3863 or visit our Premium Audit page.


This article is provided solely as a reference tool to be used for information purposes only. The information in this article shall not be construed or interpreted as providing legal or any other advice. The information material does not amend the provisions of any insurance policy issued by CompSource Mutual. It is not a representation that coverage does or does not exist for any particular claim or loss under any such policy. Coverage depends on the facts and circumstances involved in the claim or loss, all applicable policy provisions, and any applicable law.

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