Payroll and Other Remuneration Used in Workers Comp Premiums
I n all states but one, Workers’ Compensation insurance uses remuneration as the exclusive basis for computing premiums. (Washington State currently allows contractors to use hours worked instead.) But althoughpayrollis the most commoncomponentof remuneration, it isnot the only one.
In most states, the rules about remuneration are written by the National Council on Compensation Insurance, orNCCI.
But keep in mind that some states are non-NCCI jurisdictions, where there may be some significant differences in how remuneration is defined. One notable difference is that a few non-NCCI states (Delaware and Pennsylvania) do not allow for the premium portion of overtime pay to be excluded.
Most other states, even non-NCCI ones, follow NCCI rules in this regard pretty closely. Please keep in mind that this information is offered only as a general guide. We recommend that employers check with their local stateregulatorsto verify what specific rules and exceptions to these general guidelines may apply.
Wages or salaries-including retroactive wages or salaries;
Total cash received by an employee for commissions and draws against commission;
Bonuses including stock bonus plans;
Extra pay for overtime work;
Pay for holidays, vacations, or periods of sickness;
Payment by an employer of amounts that would have been withheld from employees to meet statutory obligations for insurance or pension plans such as the Federal Social Security Act or Medicare.
Payment to employees on any basis other than time worked, such as piecework, profit sharing or incentive plans.
Payment or allowances for hand tools or hand-held power tools used by employees in their work or operations for the insured. These tools may be supplied directly by the employee or to the employee through a third party;.
The rental value of an apartment or house provided to an employee based on comparable accommodations;
The value of lodging, other than an apartment or house received by an employee as part of their pay to the extent shown in the insured’s records;
The value of meals received by employees as part of their pay to the extent shown in the insured’s records;
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 plans, retirement or cafeteria plans (IRC 125) that are made through employee-authorized salary reduction from the employee’s gross pay;
Davis-Bacon wages or wages from a similar prevailing wage la;.
Expense reimbursements to employees to the extent that an employer’s records do not confirm that the expense was incurred as a valid business expense;
Exception: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 for incurred expenses, a reasonable expense allowance, limited to a maximum of $30 per day, is permitted.
Payment for filming of commercials excluding subsequent residuals that are earned by the commercial’s participant(s) each time the commercial appears in print or is broadcast.
OVERTIME:The only pay differential that can be adjusted back to straight time, under NCCI rules, is overtime (either time and a half or double time).
Other pay differentials, such as paying nine hours pay for eight hours work, can not be adjusted under NCCI manual rules. Also, keep in mind that although most states follow this NCCI rule regarding overtime, there are some exceptions. Pennsylvania and Delaware, for example, do not allow the premium portion of overtime to be removed from the payroll calculation. So always check and make sure about the rules in your particular state or state.
Remember, Workers Compensation policies start with an estimated premium, but after the policy expires the insurance company will want to determine actual audited premium, by determining actual remuneration (or payroll) for the policy period. A good way to avoid mistakes in the audit process is to request a copy of the auditor’s workpapers. This can serve as a roadmap, showing how the auditor determined remuneration and how it was placed into particular classifications.
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