Goldbridge Insurance Services
Your premium is an estimate until the audit. What you can exclude from reportable payroll is governed by rules most employers have never read, and several of them only apply if your records were kept a particular way.
A workers’ compensation policy is priced on estimated payroll and settled on actual. At expiration the carrier audits you, reconciles what you reported against what you paid, and sends either a bill or a refund.
Most employers treat that as an administrative event. It isn’t. It is the point where classification errors, undocumented splits and missing subcontractor certificates all become money, usually in the carrier’s favour, and usually twelve months after you could have done anything about it.
The default rule is broad. With specific exceptions, all money and substitutes for money earned during the policy period by covered employees and officers is payroll: gross wages, salaries, commissions, bonuses, overtime payments, the market value of gifts, and vacation, holiday and sick pay.
The exceptions are where the money is.
| Type of compensation | Reportable? |
|---|---|
| Sick, vacation and holiday pay, including accrued amounts paid at termination | Yes |
| Bonuses and commissions | Yes |
| Family leave payments | Yes |
| Tips, pre-paid and voluntary | No |
| Meals provided free to the employee | No, even where added to wages for tax purposes |
| Meals purchased by the employee from the employer, or provided in lieu of wages | Yes |
| Housing or lodging | Depends on whether the classification phraseology addresses lodging |
| Overtime, regular rate portion | Yes |
| Overtime, premium portion | Excludable, but only with the right records |
The premium portion of overtime pay, the extra half or full rate above regular pay, can be excluded from reportable payroll. But the exclusion is conditional. You have to maintain records showing, separately by employee and in summary by type of operation, either:
If your payroll system reports a single lump overtime figure, you do not meet the condition, and the whole amount goes in at full value.
For a business with meaningful overtime, this one rule can be worth thousands a year. It is a payroll configuration change, not a negotiation. Set the reporting up correctly at the start of the policy term and the exclusion is available at audit. Set it up afterwards and you have lost the year.
Uninsured subcontractors. No valid certificate covering the dates a sub actually worked and the auditor can charge their payroll to you at your classification rate. This is the largest single source of surprise audit bills for contractors.
Payroll not split by class. When records don’t support a split between classifications, the auditor can assign all of it to the highest-rated code that applies. Documentation is what protects the lower rate.
Dual wage splits without records. Construction dual wage classifications depend on the regular hourly wage, and a credit that isn’t documented gets reversed.
Clerical and outside sales not separated where the Standard Exception rules permit it.
Officer and partner payroll outside the limits. Included officers, partners, individual employers and LLC members are subject to annual minimums and maximums. Effective September 1, 2026 that range is $66,300 to $171,600. Reporting an officer’s actual draw below the minimum or above the maximum produces the wrong number in both directions.
Classification maxima ignored. Several classes cap individual payroll, and the cap has to be applied per employee rather than to the total.
Estimates left stale. If your estimated payroll is well below actual, you carry an audit balance. If it’s well above, you financed the carrier interest-free all year.
Organised records are not only about compliance. An auditor handed a clean file works from your numbers. An auditor handed a shoebox builds their own.
We will tell you whether the overtime exclusion was applied, whether your class splits held up, whether any subcontractor payroll got charged to you, and what to change in your payroll reporting now so the next audit goes differently.
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This page is general information about California workers’ compensation payroll reporting and audits. It is not legal or accounting advice. Payroll rules, thresholds and limits are set by the Uniform Statistical Reporting Plan and change over time; verify current figures with the WCIRB or your broker.