What's Included in Payroll for Workers Compensation Insurance?

Inclusions in payroll for Workers Compensation insurance:

• Wages or salaries, including retroactive wages. (Check with your insurance company auditor to have them provide state caps on individual weekly wage) Not capping individual wages is a common cause for over-reporting
• Commissions and draws against commissions
• Bonuses including stock bonus plans
• Extra pay for overtime work, with exception
• Pay for holidays, vacations, or periods of sickness
• Payments by an employer of amounts required by law to be paid by employees to statutory insurance or pension plans (like Federal Social Security)
• Payments to employees on any basis other than time worked, such as piecework, profit sharing, or incentive plans
• Payments or allowance for hand tools or power tools used by hand and used in their work or operations for the employer
• The rental value of an apartment or house provided for an employee
• The value of lodging, other than apartment or house, received by employees as part of their pay
• The value of meals received by employees as part of their pay
• The value of store certificates, merchandise, credits, or any other substitute for money received by employees as part of their pay
• Payments for salary reduction, employee savings plan, retirement, or cafeteria plans that are made through employee-authorized salary reduction from the employee’s gross pay
• Davis-Bacon wages or wages from a similar prevailing wage law
• Annuity plans
• Expense reimbursements to employees to the extent that employers’ records do not substantiate that the expense was incurred as a valid business expense (Note: when it can be verified that the employee was away from home overnight on the business of the employer, but the employer did not maintain verifiable receipts, a reasonable expense allowance, limited to $30 day, is permitted)
• Payment for filming of commercials, excluding subsequent residuals

Exclusions in payroll for Workers Compensation insurance:

• Tips and other gratuities received by employees
• Payments by an employer: (1) to group insurance or pension plans and (2) into third-party pension trusts for the Davis-Bacon Actor or similar wage law (pension trust must be qualified under IRC Sections 401(a) and 501(a)
• The value of special rewards for individual invention or discovery
• Dismissal or severance payments, except for time worked or accrued vacation
• Payments for active military duty
• Employee discounts on goods purchased from employer
• Expense reimbursements to employees to extend an employer’s records substantiate the expense was a valid business expense (Note: reimbursed expenses and flat expense allowances, except for hand or power tools, may be excluded from the audit if all three of the following conditions are met: (1) the reimbursed expenses were incurred upon the business of the employer,  (2) the amount of each employee’s expense payments is shown separately in the record of the employer, and (3) the amount of each expense reimbursement approximates the actual expenses incurred by the employee)
• Dinner money for late work
• Work uniform allowances
• Sick pay to an employee by a third party such as an insured’s group insurance carrier that is paying disability income benefits
• Employer-provided perks such as: (1) use of an automobile, (2) an airplane flight, (3) an incentive vacation (e.g. contest winner), (4) a discount on property or services, (5) club memberships, (6) tickets to entertainment events
• Employer contributions to salary reduction, employee savings plans, retirements, or cafeteria plans (IRC 125) – contributions made by the employer that are determined by the amount contributed by the employee

I hope this helps you have a good understanding of what to include and what not to include in reporting payroll to the WC insurance company. Since payroll is used (directly and indirectly) as a factor in determining everything from premium, the Experience Modification Rate (EMR), deductible levels and aggregates, Min/Max on retrospective plans, and tracking ratios like frequency rate, it’s critical that payroll is understood and submitted correctly.