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  1. Why Does SWIF Conduct An Audit?
  2. What Records Are Required For An Audit?
  3. What Is Considered Payroll?
  4. Can An Employee Be Working In More Than One Classification?
  5. What If I Use Subcontractors?
  6. What If The Subcontractor Is A Sole Proprietor?
  7. What If I Use Owner/Operators?
  8. What About An Audit Dispute?

Why Does SWIF Conduct An Audit?

Your current policy premium is based on an estimate. Premiums for workers' compensation insurance are based on actual payroll and the class distribution of that payroll. This determination is done at final audit scheduled at the end of the policy term. Part V of the Insurance Contract gives SWIF the authority to audit your records.

Records Required For Audit

  1. Tax Reports (940, 941's, PA UC2, 1096, W-2, etc.)
    • Used for verification, balancing figures for payroll records.
    • Auditor will balance payroll figures obtained from detailed payroll records to your Tax Report.

  2. Payroll Records (Individual, etc.)
    • Used to pick up the detailed payroll figures (by employee, by department), to enable the auditor to assign the correct amounts of payroll to the proper classification.

  3. Profit and Loss Statements (Expense Section)
    • Used as a source to balance with payroll or contract labor.
    • Used to decrease the time spent on an audit; if Profit and Loss Statements show no contract labor the auditor may not have to go through check registers, disbursement journals, etc., looking for subcontract labor that does not exist.

  4. Cash Disbursement Journal
    • Used to pick up subcontract and casual labor.

  5. General Ledger
    • Used as a balancing source.
    • Used for detail of wages or contract labor.

  6. Check Register (Check stubs)
    • Used to report detail for subcontractor labor (names of subcontractors and amounts paid to them).

  7. Certificates of Insurance
    • Proof that the subcontractor has workers' compensation insurance.
    • If valid Workers' Compensation Certificate of Insurance is on file at the time of audit, the auditor will exclude payments made to that subcontractor from your audit.

  8. Corporate Minutes (If applicable)

What Is Considered Payroll?

Wages, salaries and commissions are obviously payroll, but for purposes of workers' compensation, payroll or "remuneration" also includes:

  • 100% of overtime wages (no adjustment for premium time)
  • Bonuses - Profit sharing
  • Cafeteria Plans (Section 125)
  • Tips and other gratuities up to minimum wage
  • Pay for holiday, vacations, periods of sickness
  • Rental value of housing provided by the employer
  • Value of meals received by an employee as part of pay
  • Value of stock certificates, merchandise, credits, dividends or other substitutions for money received by an employee in lieu of wages
  • Draw against commission
  • Adjustment necessary to bring executive officers to corporate minimum payroll (currently all executive officers have a minimum payroll of $56,212.00 annually or $1,081.00 per week effective 4/1/2021 and maximum payroll $140,000.00.

Can An Employee Be Working In More Than One Classification?

Only in the construction trades can an employee's work come under more than one classification.

If you are in the construction trades and you have employees whose work sometimes falls into one classification and sometimes into another, you can keep and report the payroll in one of two ways:

  • Keep payroll records on a time basis and be sure that the hours in each classification are accurately noted. This method requires more record keeping but is more economical, since not all payroll is charged to the higher classification.
  • Simply record all earnings in the higher classification, and that individual will be charged the rates of that classification.

What If I Use Subcontractors?

Pennsylvania Workers' Compensation Act Section 302 (a) & (b) provides that a contractor is responsible for the payment of compensation benefits to employees of uninsured subcontractors. Contractors shall not subcontract all or any part of contract unless the subcontractors used have presented proof of insurance. Consequently, all contractors should keep workers' compensation certificates of insurance on file to prove coverage.

What If The Subcontractor is a Sole Proprietor?

Sole Proprietors with no employees are not required to carry workers' compensation insurance. However, detailed information must be provided to SWIF to prove that the individual is a true independent contractor and that all sub-contractors must be compliance with Act 72. Sole proprietors will be assessed the PA state weekly average minimum wage of $66,196.00 annually or $1,273.00 weekly effective 1/1/2023 and maximum wage $166,400 annually and $3,200 weekly effective 4/1/2024. If SWIF determines that the sole proprietor is your employee, you will be charged for his/her payroll as per the appropriate classes on your policy. It is your responsibility to provide SWIF with all appropriate documentation to resolve their employment status. Currently workers' compensation coverage for sole proprietor(s) is available through the State Workers' Insurance Fund.

What If I Use Owner/Operators?

If an insured utilizes owner/operators and is part of a trucking operation, proof of workers' compensation insurance coverage may be required. For those drivers deemed to be employees, we will need proof of workers' compensation insurance coverage. Otherwise, that part of the total remuneration that is wages will be included in the premium calculation. If payroll cannot be obtained, then 1/3 of the contract price will be considered payroll for premium calculation purposes.

What About An Audit Dispute?

It is extremely important that you provide the auditor with the records necessary for the audit. This will ensure that the audit is correct. Also, it is advisable to have the audit conducted at your location in order to resolve any classification issues.

Nevertheless, if a dispute develops after the audit is conducted and processed, you should notify SWIF within thirty (30) days of the audit billing. All disputes should be in writing and they must address specific issues on the dispute. We will review your challenge and respond within thirty (30) days to the issues raised. It is important that you notify SWIF of any dispute in a timely manner, otherwise the audit will remain as processed.


Pennsylvania Compensation Rating Bureau
Bureau of Workers’ Compensation

Contact Information

State Workers' Insurance Fund
100 Lackawanna Avenue
P.O. Box 5100
Scranton, PA 18505-5100

Phone: (570) 963-4611
Fax: (570) 963-4260