What does a Falkland business need ready for a workers' comp audit?
Payroll for the exact policy period, sorted by class code, with overtime broken out, plus a certificate of insurance for each subcontractor you paid.
The rules below come from the NC Rate Bureau's Basic Manual, North Carolina statutes and IRS pages as posted in October 2026.
Why is the carrier auditing you at all?
Because the premium you paid up front was an estimate. Rule 3 of the Basic Manual says the final premium has to be set on actual payroll found at audit, at least once a year. The audit also has to match the policy's start and end dates.
Falkland is the least populous town in Pitt County, with 47 people at the 2020 census, about ten miles northwest of Greenville. It's farm country, and a business that hires a seasonal crew for a stretch can end the year with very different payroll from the number on the policy.
Which records does the auditor want, situation by situation?
Find the rows that fit your business.
| Your situation | Records to have ready | If the records are missing |
|---|---|---|
| Everyone does one kind of work | Payroll register for the policy dates | Premium is still set on the payroll the auditor finds |
| Some workers do two kinds of work | Hours and pay in each class code, per worker | All of that worker's pay goes to the higher-rated code |
| You paid overtime | Overtime pay shown separately by employee and totaled by code | With no overtime record at all, the extra pay stays in the premium base |
| You paid subcontractors | A certificate of insurance for each one | Premium is charged for their workers on your policy |
| Corporate officers work in the business | Officer pay records and their duties | The manual's minimum officer payroll is used |
| You don't send the records | Whatever the carrier asked for, in writing | With the endorsement, a charge of up to three times the estimated annual premium |
How do class codes push the bill up?
Each kind of work has its own class code and rate, so pay in the wrong code changes the premium.
One worker, two kinds of work
Rule 2-G of the Basic Manual allows one worker's pay to be split between class codes only when the payroll records show the actual time and pay in each. It says estimated or percentage splits aren't allowed. Without real records, all of that worker's pay goes to the highest-rated code that covers any part of their work.
Say a Falkland business has two class codes on its policy and one worker moves between both kinds of work. If the timesheets don't show which hours were which, the auditor can't split them.
The office code
Rule 1 of the Basic Manual allows the clerical office code only for office duties done in a work area separated from the operating hazards by walls, floors, partitions or counters. Rule 2-G also bars splitting pay into the office code, so someone who keeps the books in the morning and works the yard in the afternoon can't have those office hours split off.
What about the subcontractors you paid?
Get a certificate of insurance from every one of them before the work starts. Under North Carolina statute 97-19, a contractor who sublets work without a certificate is liable for the subcontractor's injured workers, even when the subcontractor has fewer than three employees. The exception is a subcontractor that really did have its own policy in force on the date of the injury.
At audit, Rule 2-H adds premium to your policy for each subcontractor without that evidence. With no payroll records for their crew, the full price you paid them can count as payroll. If job paperwork shows part of the price was payroll, that part is used, but never less than these minimums:
| Type of subcontracted job | Minimum counted as payroll (% of the price) |
|---|---|
| Mobile equipment with operators | 33 1/3 |
| Labor and material | 50 |
| Labor only | 90 |
| Piecework | 100 |
Their pay is also classed the same way it would be if they were your own employees. Keep the certificates with the 1099 list and match them up before the auditor does.
Whether someone is a contractor at all is a separate test: the IRS page on independent contractors says to weigh the whole relationship: behavioral control, financial control and the type of relationship.
Do owners and officers count?
Corporate officers do. The NC Industrial Commission's page for employers says corporate officers count toward the three-employee threshold, while sole proprietors, partners and LLC members aren't automatically counted but can elect coverage.
Does a small Falkland farm need a policy in the first place?
Not always. North Carolina statute 97-13 exempts farm laborers when fewer than 10 full-time nonseasonal farm laborers are regularly employed by the same employer. But once you buy a policy, the same statute treats you as having accepted the Act for the life of that policy. Coverage questions belong with your insurance agent.
Workers' comp audit letter on your desk?
Call (252) 916-3278 or book a free consultation to talk through the payroll records your carrier is asking for.
What should be in the folder before the auditor calls?
Pull these together before the audit.
- The policy's information page, with its start and end dates and the class codes on it.
- A payroll register for those exact dates, with gross pay for every worker.
- Each worker's job duties and the class code you think fits.
- Timesheets showing hours in each code for anyone who did two kinds of work.
- Overtime pay broken out by employee and totaled by class code.
- Your 1099 list, with a certificate of insurance for each subcontractor on it.
- The quarterly payroll tax returns for the same months, so the totals can be checked against each other.
Keep the folder after the audit closes. The IRS employment tax recordkeeping page says to keep employment tax records for at least four years after filing the fourth quarter for the year. Those records should include each employee's occupation.
Where does a bookkeeper fit in?
When your carrier audits, we pull the payroll records they need as part of our payroll services. W-2 and 1099 preparation is part of the same service.
On the books side, our bookkeeping covers the general ledger and accounts payable, which is where subcontractor payments get recorded. It also helps to know whether your books are reconciled before you hand totals to anyone. Call (252) 916-3278 or get in touch for a free quote.
