Owner / officer payroll
Document owner pay, role notes, and supporting records more clearly before review starts.
Learn more →Auditable payroll
What payroll is included in a workers' comp audit
Your premium is based on payroll, but not every dollar you pay counts the same way. Here is how common pay types are usually treated under NCCI rules.
Quick answer
In a workers' comp audit, payroll generally includes wages, salaries, commissions, bonuses, holiday, vacation and sick pay, and employee pre-tax deductions such as 401(k) and Section 125. Tips, the employer's share of group insurance or pension plans, severance, and uniform allowances are generally excluded. The overtime premium and business travel per diem can be excluded when your records show them clearly.
These are general NCCI rules. Many states follow them, but states can have exceptions, some use their own rating bureau or state fund, and officer limits vary by state and policy date. Your carrier's audit sets the final numbers.
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How common pay types are usually treated
General NCCI rules. Check your state and carrier for exceptions.
| Pay type | Usually | What to keep |
|---|---|---|
| Wages, salaries, commissions, and bonuses | Included | Payroll register by employee and period |
| Holiday, vacation, and sick pay | Included | Payroll register that shows these pay types |
| Overtime | Straight-time part included. The premium part (the extra half in time-and-a-half) can be excluded | Overtime premium shown separately, by employee, in dollars rather than hours |
| Executive officers and owners | Included when covered, within state minimum and maximum amounts. Officers who qualify can be excluded with an exclusion endorsement on the policy | Names, titles, ownership share, duties, pay, and any exclusion endorsement |
| Uninsured subcontractors | Payroll for the subcontractor's workers can be added to your premium. Without their payroll records, a share of the contract price is used | Contracts, amounts paid, and certificates of insurance for every subcontractor |
| Insured subcontractors | Generally not added when you can show they had their own workers' comp coverage | A certificate of insurance that covers the dates of the work |
| Tips and gratuities | Excluded. Service charges and automatic gratuities are included | Tip reports kept separate from wages |
| Per diem and travel | Excluded when records show it is a business expense. Unverified flat allowances above a daily limit can be added to payroll | Travel records and receipts for the trips the per diem paid for |
| Employee 401(k) and Section 125 deductions | Included | Deduction reports from payroll |
| Employer contributions to group insurance or pension plans | Excluded | Plan invoices or statements |
| Severance and uniform allowances | Excluded (severance except for time worked or accrued vacation) | Separate pay codes in payroll |
Common payroll-scope mistakes
- Reporting total overtime pay with no separate premium amount, so the exclusion cannot be applied
- Assuming an owner is excluded when the policy has no exclusion endorsement
- Paying subcontractors without collecting a current certificate of insurance
- Lumping tips, per diem, and wages into one gross pay number
- Applying another state's officer limits or exceptions to your policy
How to set payroll up so the audit is easier
- Use separate payroll codes for regular pay, overtime premium, tips, per diem, and severance.
- Check your policy for officer inclusion or exclusion endorsements.
- Collect a certificate of insurance from each subcontractor before work starts and track expiration dates.
- Keep travel records for any per diem you expect to be excluded.
- Ask your carrier or agent which state rules apply to your policy.
Keep reading
Contractor audit prep
Use this when subcontractors, COIs, mixed duties, and owner/officer questions are part of the file.
Learn more →Payroll reconciliation template
A free template that lines up the payroll register, Form 941s, and workers' comp payroll by quarter.
Learn more →Subcontractor COIs
Organize vendor proof, expiration dates, and follow-up before missing COIs become the whole story.
Learn more →Reconcile 941 to payroll
Get from quarterly 941 totals to policy-period workers' comp payroll, step by step.
Learn more →1099 subcontractors
Keep vendor payments, proof, and notes tied together before the audit questions stack up.
Learn more →Frequently asked questions
Is overtime included in workers' comp payroll?
The straight-time part is. Under NCCI rules the premium part can be excluded, but only if your records show it separately. Without that, the full overtime pay can be counted.
Are owners and officers included?
If the policy covers them, yes, usually within a state minimum and maximum. Officers who qualify under state rules can be excluded, but the policy has to carry an exclusion endorsement. Rules and limits vary by state.
Why would subcontractor payments show up on my audit?
If a subcontractor had no workers' comp coverage of its own, the carrier can charge premium on your policy for that subcontractor's workers. A certificate of insurance that covers the dates of the work is the usual proof of coverage.
Are tips included?
Tips and gratuities that employees receive are excluded under NCCI rules. Service charges and automatic gratuities are included.
Is per diem included?
Business travel per diem can be excluded when your records support it as a business expense. Flat allowances without records can be counted as payroll above a daily limit, so keep travel records.
Do these rules apply in my state?
Not always. Many states use NCCI rules, but states can have exceptions and some use their own rating bureau or state fund. Check with your carrier or agent before relying on any one rule.
Important scope note
Practical prep guidance only.
This page summarizes general NCCI payroll rules for audit prep. It is not legal, tax, or insurance advice, it is not a ruling on your policy, and your state or carrier may apply different rules.
Keep each exclusion next to its records
The Construction Kit workbook has tabs for payroll reconciliation, owner and officer payroll, and subcontractor payments and COIs, so the support for each adjustment sits in one file.