Physical Audit Requirements


The Workers’ Compensation Insurance Rating Bureau of California (WCIRB) has received questions about which workers’ compensation policies must be physically audited. Under a variety of circumstances, it may not be advisable or even possible for premium auditors to meet face-to-face with policyholders or their representatives to conduct an audit.

There are no changes anticipated for physical audit requirements, but it is important to note that the California Workers' Compensation Uniform Statistical Reporting Plan—1995 (USRP) does not require an in-person meeting with the policyholder or its audit representative.

The USRP defines a physical audit as an audit of payroll, whether conducted at the policyholder’s location or at a remote site, that is based upon an auditor’s examination of the policyholder’s books of accounts and original payroll records (in either electronic or hard copy form) as necessary to determine and verify the exposure amounts by classification. (Emphasis added)

So it is possible to perform a physical audit remotely, provided the auditor reviews the policyholder’s original payroll records. This is most often accomplished by making the records available to the auditor electronically. This requirement speaks to what must be reviewed, not where the review is to be done. While it may be a best audit practice to conduct an on-site survey of the policyholder’s operations concurrent with the payroll audit, it is not a USRP requirement.

In contrast, a Voluntary Audit is an audit of payroll that is based upon a signed payroll statement obtained from the employer; in this case, the auditor does not review the policyholder’s original payroll records.

The USRP contains the following physical audit requirements for policies incepting on or after January 1, 2021:

(1) Each policy producing a final premium of $10,500 or more shall be subject to a physical audit at least once a year. On policies subject to monthly, quarterly, or semi-annual interim audits, voluntary audits may be accepted in lieu of interim physical audits. The last audit of the policy shall be a physical audit of the complete policy period.

(2) Each policy producing a final premium of less than $10,500 shall be physically audited at sufficient intervals to ensure determination of proper payrolls. For each policy that is not physically audited, a voluntary audit shall be performed.

(3) Each policy producing a final premium of less than $10,500 and developing exposure in a dual wage construction or erection classification that requires the regular hourly wage to equal or exceed a specified amount shall be physically audited, unless the policy is a renewal and the insurer physically audited one of the two immediately preceding policy periods.

(4) Notwithstanding the above, a physical audit shall be conducted on the complete policy period of each policy insuring the holder of a C-39 license from the Contractors State License Board. See California Insurance Code Section 11665(a) for additional requirements regarding the audit of C-39 license holders.

Additional Questions

WCIRB Contact Center

Telephone: 888.CA.WCIRB (888.229.2472)
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