How does a workers’ compensation premium audit work in Texas?
By Mark Melliand, owner, Melliand Insurance Agency · 13 years as an independent agent · Published October 26, 2026
The short answer: Workers’ compensation premium is generally based on payroll, and the premium at the start of a policy is usually based on estimates. A premium audit compares those estimates with your actual records, operations and other rating information for the policy period. The result may be additional premium, a credit or no change. Your policy, the applicable rating rules and your insurer’s procedures govern how it works.
To prepare your initial payroll estimates, see our guide to what information you need for a workers’ compensation quote in Texas.
Why insurers audit
Texas premium is generally calculated from payroll assigned to classifications, multiplied by rates per $100 of payroll, with possible adjustments such as an experience modifier (TDI rate guide). Because payroll for the coming year isn’t known in advance, the starting premium is based on estimates. One Texas insurer describes its final audit as a review of a policyholder’s payroll and business operations at the end of the policy, comparing estimated figures with actual payroll and operations (Texas Mutual, insurer guidance). Check your policy’s audit and recordkeeping conditions, including when records may be examined and how long they must remain available.
How an audit differs from other things
- Renewal sets terms for the next policy period. A final audit generally reviews the completed policy period. Some insurers also conduct audits during the term.
- Reporting a claim concerns an injured employee’s benefits. Benefit disputes follow a separate process through the Texas Department of Insurance, Division of Workers’ Compensation.
- Filing taxes uses tax rules. Premium follows the rating rules that apply to your policy, and the two definitions of pay aren’t necessarily the same. Tax reports may be used to reconcile payroll but don’t decide premium by themselves.
How the process works
| Audit stage | What may happen | What to prepare |
|---|---|---|
| Policy ends or is cancelled | Insurers commonly audit after expiration or cancellation; some also audit during the term (Texas Mutual; Berkshire Hathaway Homestate) | Keep records for the exact policy-period dates |
| Audit request | The insurer contacts you to schedule or request records | Respond promptly, and ask what format and method they need |
| Audit method | By phone, online, by records review, virtually or in person, depending on the insurer and account (Texas Mutual; Berkshire Hathaway Homestate) | Organized records and someone available who knows the operations |
| Records review | The auditor reviews payroll, operations, owners and subcontractors | Payroll reports, tax or wage reports, subcontractor records and an operations description |
| Results | An audit summary or statement shows payroll by classification and the adjustment. One insurer notes its summary isn’t itself a bill (Texas Mutual). | Compare the figures with your records |
| Billing adjustment | Additional premium, a credit or no change | Follow your insurer’s billing and review instructions |
Records that may be requested
Requests vary by insurer and business. Insurer guidance mentions items such as these (Texas Mutual, insurer guidance; Berkshire Hathaway Homestate, insurer guidance):
- Payroll reports for the actual policy period
- Federal quarterly tax returns or state unemployment wage reports, used to reconcile payroll
- A description of operations, employee duties and work locations
- Overtime and other pay, identified separately in your records
- Owner and officer information and the endorsements that apply
- General ledger, profit and loss statements or other financial records
- Subcontractor payments, agreements, 1099 records and available certificates of insurance
- Staffing, leased-worker or PEO arrangements
Calendar-year reports may need to be reconciled to a policy period with different dates. Keep records as the work occurs so you can substantiate payroll and duties. Ask the auditor what documentation is acceptable if records are incomplete. Don’t substitute rough percentage splits for actual records.
What can change the final premium
- Actual payroll, higher or lower than estimated.
- Actual operations and classifications. Describe operations and duties accurately, and ask the insurer to explain any classification assignment or change. Job titles alone don’t determine classification.
- Owners and officers. Review your entity structure and any inclusion or exclusion endorsements, and ask how owner payroll was treated. Owners can’t always freely choose inclusion or exclusion.
- Subcontractors. Ask how subcontractor payments and records were treated. A 1099, agreement or certificate alone doesn’t resolve every status or premium question, and a certificate doesn’t automatically remove every subcontractor payment from the audit.
- Other rating factors and policy provisions, such as experience modifiers and other adjustments (TDI rate guide).
Lower payroll doesn’t guarantee a proportional refund, because other rating factors and policy provisions can affect the result. Don’t choose a cheaper code or leave payroll out; describe the work accurately.
A simple hypothetical calculation
This illustration uses an invented rate. It ignores experience modifiers, other rating factors, charges and policy provisions, and it isn’t a quote.
- Invented rate: $2.50 per $100 of payroll
- Estimated payroll: $300,000 → $300,000 ÷ 100 × $2.50 = $7,500
- Actual payroll at audit: $340,000 → $340,000 ÷ 100 × $2.50 = $8,500
- Difference: $1,000 — illustrative additional payroll-based premium before other applicable adjustments
This isn’t necessarily the amount of an invoice after payments, credits or other rating factors. If actual payroll had been lower, the same arithmetic would show a smaller figure, but the actual result depends on all applicable rating factors and policy provisions. TDI publishes loss costs, and an insurer’s rate also reflects its own multiplier, so a published loss cost isn’t the insurer’s final rate (TDI rate guide).
Reviewing or questioning an audit
- Request the audit worksheet or premium breakdown.
- Compare the policy-period dates and payroll figures with your records.
- Review classifications, owner treatment and subcontractor entries.
- Identify specific discrepancies and provide supporting records.
- Ask the insurer, or Mark, about the review process and any deadlines.
Insurers have their own procedures. One asks for a dispute form with supporting data (Berkshire Hathaway Homestate, insurer guidance). Another accepts a letter stating specific reasons with supporting documentation (Texas Mutual, insurer guidance).
Don’t ignore an invoice or assume a review suspends your payment obligations. Ask the insurer how billing is handled while a question is reviewed. The consequences of not cooperating with an audit depend on the policy terms and applicable rules, so ask your insurer what applies.
If you can’t resolve a premium issue with your insurer, the Texas Department of Insurance accepts complaints about insurance companies it regulates (TDI complaint information; Help Line 800-252-3439). TDI recommends contacting your insurer first. TDI can explain its complaint process and jurisdiction. It does not necessarily resolve disagreements about facts or determine that every requested audit adjustment is owed. Filing a complaint doesn’t suspend billing or insurer deadlines.
Audit-preparation checklist
- Payroll reports matching the policy-period dates
- Quarterly tax or wage reports for reconciliation
- Employee duties and work locations
- Overtime and other pay identified separately
- Owner and officer information and endorsements
- Subcontractor agreements, payments and available certificates
- Staffing, leased-worker or PEO arrangements
- A contact person who understands your operations
Protect sensitive information
Don’t send employee Social Security numbers, medical records, banking details or confidential payroll files through ordinary email or a website form. Ask the insurer or Mark for an appropriate secure way to provide them.
Questions to ask Mark or the insurer
- How and when will the audit be conducted, and what records do you need?
- How were my classifications assigned, and did any change?
- How were owner payroll and subcontractor payments treated?
- What is the process and deadline for questioning a result?
- How is billing handled while a question is reviewed?
Mark can help you prepare and ask questions, but the insurer makes the audit determination.
Talk through your needs
Melliand Insurance Agency is an independently operated insurance agency affiliated with Premier Group Insurance (PGI), a nationwide agency network.
To discuss a workers’ compensation audit, call (972) 346-4666 or email melliandinsurance@gmail.com. Hours are Monday–Friday, 8 AM–5 PM Central. There is no walk-in office. In-person visits are available by appointment at your home or business throughout the Dallas–Fort Worth area.
References
Texas regulator
- TDI, Texas workers’ compensation rate guide
- TDI, File a complaint (other insurance)
- TDI-DWC, Dispute resolution for injured employees
Insurer guidance (general description, not policy terms)
- Texas Mutual, Agent’s final audit guide (September 22, 2025)
- Texas Mutual, Employer FAQ
- Berkshire Hathaway Homestate Companies, Premium audit (not Texas-specific)
This guide is general information, not legal advice or a statement of coverage or price. Actual policy terms and applicable rules control. Requesting a quote does not bind coverage.