Workers Compensation "Payroll" Inclusions and Exclusions

Today we present an article on Worker Compensation Inclusions and Exclusions from our Guest Author: John Keller, CRM ARM CIC AAI

Throughout my work consulting with businesses in all aspects of Workers Compensation, I’m always asked a basic question about WC payroll, so I thought I’d elaborate for all. Most of us know that Workers Compensation premium is a function of rates and payroll by classification code. Because this is relatively straight forward, it’s easy to gloss over “what is considered ‘payroll’ for workers compensation purposes?”

Incorrect payroll has a direct impact on Workers Compensation premium, and it’s critical that the correct payroll be used. Under-report payroll and you’ll have a large, nasty audit bill hit you 3 months after the policy expires (100% due in full, by the way); over-report payroll, and you drag down your cash flow throughout the year, and then have to claw for your money back at the audit.

Below is a comprehensive list of the inclusions and exclusions for “payroll” as defined by the National Council on Compensation Insurance (NCCI):

Inclusions in payroll for Workers Compensation insurance:

1. 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.
2. Commissions and draws against commissions
3. Bonuses including stock bonus plans
4. Extra pay for overtime work, with exception
5. Pay for holidays, vacations, or periods of sickness
6. Payments by an employer of amounts required by law to be paid by employees to statutory insurance or pension plans (like Federal Social Security)
7. Payments to employees on any bsis other than time worked, such as piecework, profit sharing, or incentive plans
8. Payments or allowance for hand tools or power tools used by hand and used in their work or operations for the employer
9. The rental value of an apartment or house provided for an employee
10. The value of lodging, other than apartment or house, received by employees as part of their pay
11. The value of meals received by employees as part of their pay
12. The value of store certificates, merchandise, credits or any other substitute for money received by employees as part of their pay
13. 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
14. Davis-Bacon wages or wages from a similar prevailing wage law
15. Annuity plans
16. Expense reimbursements to employees to the extent that employers’ records do not substantiate that the expense was incurred as a valid business expense
17. 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
18. Payment for filming of commercials, excluding subsequent residuals
    

Exclusions in payroll for Workers Compensation insurance:

1. Tips and other gratuities received by employees
2. 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)
3. The value of special rewards for individual invention or discovery
4. Dismissal or severance payments, except for time worked or accrued vacation
5. Payments for active military duty
6. Employee discounts on goods purchased from employer
7. Expense reimbursements to employees to the extend an employer’s records substantiate the expense was a valid business expense
8. 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, and (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
9. Supper money for late work
10. Work uniform allowances
11. Sick pay to an employee by a third party such as an insured’s group insurance carrier that is paying disability income benefits
12. 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
13. 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.

This article can also be found on John Keller's Hub by clicking here.



About our Guest Author:

John Keller is a Certified Risk Manager and consultant with Praxiom Risk Management in Tampa, FL. Praxiom is a full-service outsourced Risk Management consulting firm specializing in Workers’ Compensation safety, loss prevention, claims management, insurance placement, and is comprised of veterans of the risk management and financial services industry. Praxiom works with clients nationwide. Comments and questions are welcome at jkeller@praxiom-rm.com. Click here for John's full bio.

Searching for the Right Talent – An Overlooked Resource

In an effort to improve the variety of our content, we have invited posts from guest authors. Today, we feature the first in a series of posts from exceptional HR professionals. Enjoy!

* * *

In the never ending pursuit of finding the right talent, one large group of individuals is often overlooked, misunderstood or sometimes outright ignored. But the 53 million Americans with disabilities are an untapped resource that can easily meet most challenges in many companies.

The most diverse companies are the most successful. Our experience has been that diversity breeds innovation and innovation is a building block for success. By giving ALL people an opportunity, no matter how society chooses to label them, employers must look beyond the label and directly at the individual. That is another step in eliminating barriers to work for people with disabilities.

Affiliated Computer Services, Inc. (ACS) recently started a major push to tap into this labor pool by partnering with hundreds of organizations across the country that assist with the employment and placement of people with disabilities. Through these partnerships we now have more qualified, dedicated and motivated people that will improve our bottom line. We are convinced that these individuals could be successful not only at ACS, but other organizations as well.

Early internal research shows that employees with disabilities are three times as likely to remain employed when compared to the non-disabled population. While it is too early to say for certain why this is so, we have theories based on our initial success. For example, some of our employees with disabilities tell us they have literally been looking for a job for years. That persistence translates into loyalty and dedication once they find a position.

People with disabilities are employed at about half the rate of people without disabilities, according to the Employment and Disability Institute at Cornell University. About 22 million Americans ages 21 to 64, or about 13 percent of the working-age population, have a disability. Only 38 percent of persons with disabilities are employed, compared with 80 percent of Americans without a disability. Among college graduates, 55 percent of persons with disabilities are employed, compared with 83 percent who do not have a disability, according to the Web site Disabilitystatistics.org. There is a large, well educated talent pool of people who are able to make a difference if they can be matched up with the right opportunity.

Despite this large pool of talented potential employees, many employers, hiring managers and recruiters fear there will be an added cost if they hire a person with a disability. Accommodations do not always come with a cost. The Office of Disability Employment Policy's Job Accommodation Network (JAN) reported that 68% of job accommodations made cost less than $500.

Many of the accommodations simply require awareness by the employee’s manager. That type of continued education needs to include ongoing training to employees and managers regarding hiring, managing, supporting and promoting people with disabilities.

Some accommodations, actually make recruiting easier. For example, ACS recruiters work with the Kentucky Office For the Blind counselors and blind or visually impaired applicants to identify their unique work skills and how their attributes can best be utilized. By modifying a pre-employment test to utilize alternative technology that makes the testing process more accessible for the blind and visually impaired, recruiters were able to provide Office For the Blind counselors with the necessary tools to conduct the testing at their offices. This ensured that blind and visually impaired applicants had the accommodations they needed at a location where they frequented in order to test and apply for positions, while ACS gained a larger applicant pool.

There may be some costs for some accommodations, but the Job Accommodation Network reports that for every dollar spent on accommodations, the company received $28 in benefits. Open jobs cost companies money – lost productivity, cost to locate, hire and train a new hire and the cost of churning through multiple hires until a good fit is finally found. A dedicated and committed recruiting team is required to make these potential savings materialize.

Knowing where to find people with disabilities and then establishing solid and trusting relationships with agencies that partner with those individuals is the first step. In the first few months of this program’s existence, our team of diversity recruiters has established partnerships with state and local vocational rehabilitation agencies and organizations such as community and local government groups, college disability services offices, self-advocacy, independent-living organizations, as well as veterans’ organizations and others that provide services to people with disabilities such as Goodwill. Once these partnerships are cemented, a steady flow of referrals from these agencies can be expected.

There are countless people with disabilities who have accomplished great things through the years. Franklin D. Roosevelt had polio and used a wheelchair. Ludwig Von Beethoven was deaf when he composed his 9th Symphony. There have also been actors, Nobel and Pulitzer Prize winners as well. There is no reason corporations can not open their doors to these potential employees. It’s ability, not the disability that matters.

* * *

About our guest Author: 

Lora Villarreal is Executive Vice President and Chief People Officer for Affiliated Computer Services, Inc. (ACS). She is the visionary charged with making ACS’ disability recruiting program successful. Villarreal has more than 20 years of business, human resources, and administration experience.