The insurance policy requires the employer to maintain books and records sufficient to permit premium determination. The policy also gives the insurer the right to physically inspect those books and records. State law may also give the rating bureau or rating agency the right to perform its own audit. Unlike insurer audits, bureau audits are generally done at random. Their main purpose is to audit insurers’ performance in correctly gathering and reporting data to the rating bureau.

Most insurance companies maintain a staff of premium audit employees. These auditors visit the employer’s premises to examine original payroll ledgers, records of payments to independent contractors, state tax returns, and related documents. The auditor may also ask questions about the employer’s operations and employee job duties, in order to verify the employer’s assignment of payroll and the insurer’s assignment of claims to particular classifications.

The auditor will compile audit workpapers, and usually ask the employer to sign an audit acknowledgement form. From these workpapers, the insurer calculates the final audit premium. If this audit premium exceeds the amount paid by the employer during the policy period, the insurer issues a refund; if the audit premium exceeds the amount previously paid, an additional premium or “AP” invoice is issued. Some insurers will contract out audits to an independent firm, especially if the premium is relatively small and/or the location of the policyholder’s books and records is remote from the insurer’s office. If the premium is very small, the insurer may accept a signed statement from the employer in lieu of conducting a physical audit.