Key takeaways
- The workers compensation premium is calculated from the wages declared for the policy, so the declaration is the foundation of the cost and not a form completed in a hurry at renewal.
- The wages that count for premium purposes usually reach further than the wage line on a payslip, so overtime, allowances and certain subcontract payments have to be considered before a figure is declared.
- An insurer’s audit compares the declared figure with payroll, tax and subcontract records, which means the records kept during the policy year matter more than the original estimate.
- A declaration set low to reduce the premium tends to come back as an adjustment and sometimes as a dispute, and the cost of that conversation is usually more than the premium that was saved.
- The builder should read the policy wording and the insurer’s audit terms each year, because what counts as wages is set by the policy and the scheme rules and not by what was done last time.
Workers compensation is one of the costs a builder sees in the policy schedule and then forgets until the next renewal. The premium is calculated from the wages declared for the policy, and that declaration is usually completed at renewal from an estimate of the year ahead. The figure looks like paperwork. In practice it sets the price of the insurance for the whole year, and it is the figure an insurer will later test against the records.
The question that matters is not whether the declaration was filled in. It is whether the wages declared can be matched to the wages actually paid, and whether the builder can show how the figure was built. An audit tests that match. A builder who has kept the records through the year answers the audit in an afternoon. A builder who has not spends weeks reconstructing a year from bank statements and memory, and often pays an adjustment that was avoidable.
This article covers how the declaration is built, what counts as wages for the purpose, how subcontractors and contractors are treated, what an audit looks at, and the records that make the audit short. It is about the declaration and the audit. The claims side, which is a separate process, is covered in our article on insurance notifications for work injuries.
Why the declaration drives the premium
The premium is a price for the risk of injury to the people working for you, and the insurer sets that price using the size of the workforce and the wages it pays. A larger payroll carries more exposure, so the declared wages are the measure of how much the insurer is taking on. A declaration that understates the wages understates the exposure, and the premium is set on that understated base for the whole policy year.
That is the mechanism to keep in mind when the estimate is being set. The declaration is not a number to be negotiated down so the premium looks better on the quote. It is a forecast that the insurer relies on, and it is checked afterwards. The insurer does not have to prove the builder was dishonest to adjust the premium. It only has to show that the declared figure and the actual wages are different, and the records are what show that.
The declaration also governs the relationship with the insurer for the year. A declaration that is clearly wrong at the start tends to attract closer scrutiny at the audit, and a builder who has a history of large adjustments may find the next renewal harder to place. The cost of the declaration is therefore not only the premium for the current year.
What counts as wages for the declaration
The wage line on a payslip is the starting point, not the whole of the figure. Overtime, allowances, bonuses and some other payments made to workers are often part of the wages for premium purposes, and the policy wording sets out which of them are included. A builder who declares only base wages because that is what the payroll report shows at the top of the page can end up with a figure that does not match the policy definition at all.
Work out the components before the estimate is set, and write them down. A simple schedule that lists each type of payment, whether it is included, and the reason it is included, is more useful than a single total. It gives the person completing the declaration something to check against, and it gives the insurer something to read if it asks how the figure was built. The schedule should be dated and kept with the declaration.
Remember that the definition is in the policy, not in the habit of the business. A practice that has always been followed may not match the current policy wording, and the audit will test against the wording. Read the definition each year, and ask the broker to confirm it when the policy changes.
Subcontractors, contractors and the people who are not on the payroll
Subcontractors are the area where most of the disputes arise. A builder who engages a trade on a subcontract may assume that the trade’s wages are not part of the declaration, because the trade pays its own people. That assumption is not safe. Whether a subcontractor’s workers are included, and how they are included, depends on the status of the person doing the work and the terms of the policy. The question is one to answer in writing before the work starts, not one to argue about at audit.
The classification of each worker matters for the same reason. Whether a person is an employee or a contractor affects how the person is treated for premium purposes, and it also affects the tax, super and leave obligations that sit alongside the premium. Our article on employee or contractor classification for builders covers that question in more depth. The point for the declaration is simple: each person on site should have a recorded status, and the status should match the way the work is actually done.
A good practice is to ask every subcontractor for a current certificate of currency for their own workers compensation cover, and to keep it on file. A subcontractor with no cover of their own can leave their workers inside the builder’s cover, and the declaration then has to reflect that. The certificate is the document that shows where each worker sits.
How the policy year fits together
The declaration is set at the start of the policy year, and the actual wages are compiled at the end. Between the two, the business is expected to keep records that allow the actual figure to be worked out. The sequence is worth understanding as a whole, because it shows where the risk sits. The estimate is the easiest part to get wrong, and the records are the part most often neglected during the year.
How a declaration runs through the policy year
- Estimate and declareThe expected wages for the coming policy year are declared, based on the workforce and the work planned.
- Keep the records as the year runsPayroll, timesheets, subcontract invoices and changes in staff are kept as they happen, not reconstructed later.
- Review the estimate mid-yearIf the work or the workforce has changed materially, the declaration is reviewed with the insurer or the broker.
- Close the year and reconcileThe actual wages for the year are compiled from the records and compared with the declaration.
- Audit and adjustThe insurer may audit the records, and the premium is adjusted if the declared and actual wages differ.
The middle stages are where the builder has most control. A change in the workforce, a large subcontract that starts mid-year or a shift in the mix of work can all move the actual wages away from the declaration. Reviewing the estimate when the work changes, rather than waiting for the audit, is the cheapest way to keep the final adjustment small. Speak to the broker before the change, not after the invoice arrives.
What an audit looks at
An insurer’s audit compares the declared wages with the records that show what was actually paid. The audit is not a general review of the business. It is a test of the figure. The auditor will usually ask for payroll summaries, timesheets or attendance records, and the records of any subcontract work, and will check whether the totals agree with the declaration once the policy definition has been applied.
The audit is also a test of the records themselves. Records that are complete, consistent and kept at the time carry more weight than records assembled after the request arrives. An auditor who finds a payroll that does not match the timesheets will ask questions about both, and the questions tend to spread. The builder who can show a clean link from the timesheet to the pay run to the declaration is the one who gets the audit finished quickly.
The audit terms set out what the insurer may ask for and the period it covers. Read the terms in the policy, and keep the records for at least the period they describe. The insurer’s own guidance on premium audits is the place to confirm the detail, because the policy wording is what governs the audit in the end.
The mistake that costs the most. Setting a low estimate to hold the premium down, then finding at audit that the actual wages were well above it. The adjustment arrives as a bill with no warning, and the saving from the lower estimate is gone before the year has finished.
The records that keep an audit short
The records are the audit. A builder who has them in order does not need to argue about the figure, because the figure is simply the sum of the records. The list below is the set to keep through the year, and it is worth checking each quarter rather than at the end of the year, when the records are harder to find and the people who made them have moved on.
The records that keep an audit short
- Payroll summaries for each pay period, showing gross wages and any allowances paid.
- Timesheets or site attendance records that match the pay runs for the same period.
- Overtime records, including the approval for it, kept separately from ordinary hours.
- Subcontract agreements and invoices, with the name and licence of each subcontractor.
- Records showing whether each person on site is an employee or a contractor, and why.
- The policy schedule and any correspondence with the insurer about the declared figure.
Keep the records in one place, organised by pay period, and make sure the payroll system, the timesheets and the subcontract file all tell the same story. A payroll report that does not reconcile to the timesheets is the first thing an auditor will test, and the reconciliation is much easier to do in the middle of the year than after it has closed.
A worked example: the year with a busy subcontract
Consider a builder in western Sydney with a small employed crew and a steady stream of subcontract work. At renewal the builder declared a figure based on the crew and the work that was booked at the time. The declaration did not include the overtime the crew worked during a busy spring, and the subcontract work was treated as outside the figure on the basis that the trades paid their own people.
At audit the insurer asked for the payroll, the timesheets and the subcontract agreements. The payroll showed overtime that the declaration had left out, and two of the subcontractors could not produce a current certificate of cover for their own workers. Both points were legitimate questions, and neither was easy to answer from the records as kept. The builder had to reconstruct the subcontract position from invoices and emails, and the adjustment included the overtime and a view of the subcontract workers that the builder had not expected.
The lesson is not that the builder had acted in bad faith. The builder had made assumptions that were never checked against the policy wording or the subcontract records. Writing the assumptions down at the start, and asking the broker to confirm them, would have changed the outcome.
The builder changed the process afterwards. The declaration now starts from the previous year’s actual wages, with each adjustment written down, and the subcontract certificates are checked when each job is booked rather than at renewal. The mid-year review is in the diary, and the broker is told of any change to the workforce before it happens. None of it is complicated, and none of it was done before the audit made it necessary.
Disputing an adjustment or a finding
If an audit produces an adjustment you believe is wrong, do not accept it simply because it has been sent. Ask the insurer to explain how the figure was calculated, and check each component against the records and the policy definition. A disagreement over one component is far easier to resolve than a general dispute about the whole figure, so it helps to be specific from the start.
Most disputes are resolved by the records. If the records support the declaration, say so and provide them. If they do not, the adjustment is likely to stand, and the better course is to negotiate the timing or the explanation rather than to contest the figure without evidence. The broker can usually help with that conversation, and it is worth involving them before the position hardens.
Getting the declaration right at renewal
The renewal declaration is the moment to set the estimate properly, and it is the moment most often rushed. Use the actual figures from the previous year as the starting point, adjust them for the work planned and the workforce expected, and document each adjustment. Do not reduce the figure simply because a lower premium is wanted, because that is the point at which the declaration stops being a forecast and becomes a choice the insurer will test.
Joiners and leavers need the same care as the rest of the payroll. A worker who starts in the middle of the year adds wages for the remainder of the year, and a worker who leaves should have their final pay recorded in the same way as everyone else. Keep the start and finish dates on file, and record each person’s status as an employee or a contractor on the day they start, not in a reconstruction at audit. A business that changes its crew often will find that the audit is mostly a question of whether the joiners and leavers were recorded when they moved.
Once the declaration is set, put the review date in the diary. A mid-year review is the cheapest insurance against a large adjustment at the end. The PointCPD home page lists the NSW builder courses we offer.
Keeping the wages question in the business, not in a file
Workers compensation wages are easy to put in a drawer and forget. The businesses that handle the audit well treat the declaration as a standing part of the business rhythm, reviewed when the workforce changes, when a large subcontract starts and when the policy is renewed. The person who completes the declaration should also know where the records are and who to call when a question arrives.
The question is not only what the business owes, but whether the business can show what it did. A declaration built on a schedule, supported by records kept as the year runs and checked against the policy wording, is the one that holds up when the insurer asks for it.
Questions builders ask
How is the workers compensation premium worked out for a builder?
The premium is based on the wages declared for the policy, which is an estimate set at the start of the policy year. The actual wages are compared with the declaration at the end of the year, and the premium is adjusted if they differ.
Do overtime and allowances count as wages for the declaration?
They often do, but the policy wording sets out which payments are included. Read the definition in the policy each year, and ask the broker to confirm it if the policy changes.
Do I need to include subcontractors in my wages declaration?
It depends on the status of the people doing the work and on the terms of the policy. Settle the position in writing before the work starts, and ask each subcontractor for a current certificate of cover for their own workers.
What does the insurer look at during a premium audit?
The auditor usually asks for payroll summaries, timesheets or attendance records and the records of subcontract work, and checks whether the totals agree with the declaration once the policy definition has been applied. The audit terms in the policy set out what can be requested.
Can I lower my estimate at renewal to reduce the premium?
A declaration should be a forecast of the actual wages. A figure set low to reduce the premium tends to come back as an adjustment at audit, and the cost of that adjustment is often more than the saving.
What should I do if I think an audit adjustment is wrong?
Ask the insurer to explain how the figure was calculated, check each component against your records and the policy definition, and raise the specific points you disagree with. Involve the broker early, because most disputes turn on the records.
Sources
- Rising fuel costs: what trades need to know about contracts, insurance and compliance · Building Commission NSW · 2026-04-28
- General building work licensing · NSW Government · 2026-09-03
Published 26 September 2026. General information for builders, not legal, financial or engineering advice for a specific job. Check current requirements with the relevant regulator or standard before relying on them.
