Unlike the cost of most other products and services an employer buys, the precise cost of workers compensation insurance cannot be known until after it has been purchased and used -- meaning after the policy has expired. This is because premiums are based in part upon the employer’s actual payroll in each workers compensation classification during the policy year. A post-policy audit is therefore necessary to determine the payroll by classification. At audit, the premium estimated at policy inception, or periodically adjusted during the policy period, is reconciled against the final audit amount.

In addition to determining the final premium, the final audit is also the source of data that the insurer reports to the rating agency or rating bureau (such as the WCIRB or NCCI). The rating bureau uses this data to calculate base rates for the next year or other rate period, and to calculate experience modifications.