Year-end payroll is more than an accounting exercise. For Workers Compensation, payroll figures directly drive premium calculations, audit results, and experience modifiers. Small mistakes left uncorrected in December often turn into surprise audit bills months later.
Cleaning up payroll before year-end is one of the most effective ways to control Workers Comp costs and avoid unnecessary disputes.
Payroll Is the Foundation of Workers Comp Premiums
Workers Comp premiums are calculated by multiplying payroll by class-code rates. If payroll is overstated, misclassified, or reported inconsistently, premiums increase automatically—even when risk has not changed.
Insurers rely on year-end payroll totals to finalize audits and set expectations for the next policy term.
Misclassified Payroll Is the Most Common Audit Issue
Employees performing multiple duties are often assigned to the wrong class code. Office staff incorrectly included in field payroll, supervisors misclassified as laborers, or overtime not separated properly can all inflate premium.
Year-end review is the best time to correct classifications while documentation is fresh and accessible.
Overtime Errors Quietly Inflate Premiums
Overtime pay should generally be reported at straight-time wages only, excluding premium pay. When overtime is reported incorrectly, payroll appears higher than it should be, increasing Workers Comp costs.
Correcting overtime reporting before year-end prevents overpayment and audit disputes.
Owner, Officer, and Executive Payroll Needs Review
Ownership payroll is often subject to minimums, maximums, or exemption rules that vary by state. Incorrect reporting of officers or partners can significantly affect premium.
Year-end is the right moment to confirm elections, waivers, and proper payroll limits are applied.
Bonuses, Commissions, and Special Pay Matter
Not all compensation is treated the same under Workers Comp. Bonuses tied to production or labor may be includable, while discretionary bonuses may not be.
Failing to separate compensation types leads to inflated payroll totals and audit adjustments.
Payroll Reconciliation Prevents Audit Shock
Audits compare estimated payroll to actual figures. When discrepancies are large, businesses face unexpected bills or refunds months after policy expiration.
Reconciling payroll now reduces surprises and allows corrections to be made before audits are finalized.
Late-Year Payroll Affects Experience Modifiers
For Workers Comp, payroll impacts claim frequency calculations. Errors in reported payroll can distort experience modifiers, increasing premiums for multiple years.
December corrections still matter because they influence data that carries into future mod calculations.
Multi-State Payroll Adds Complexity
Businesses operating in multiple states face different class codes, rates, and reporting rules. Errors often occur when payroll is aggregated instead of properly allocated by state.
Year-end cleanup ensures compliance and prevents regulatory issues.
Documentation Is Your Best Defense
Clear payroll records, job descriptions, and time tracking support proper classification. Without documentation, insurers default to higher-risk assumptions during audits.
Preparing documentation before year-end strengthens your position and shortens audit timelines.
How Skyscraper Insurance Helps With Payroll Review
Skyscraper Insurance works with businesses to review payroll data, class codes, and compensation structures before audits occur. We identify discrepancies, correct classifications, and coordinate with carriers to ensure accurate reporting.
Our focus is on preventing audit surprises—not reacting to them.
Fix It Now or Pay for It Later
Payroll errors rarely fix themselves. Addressing issues before year-end protects cash flow, reduces audit stress, and positions your Workers Comp program for a smoother renewal.
December is the last opportunity to clean up payroll before numbers become permanent.
