Did you ever wonder how workers’ compensation is calculated and why premiums fluctuate even though your payroll is consistent?
Most administrators know that workers’ compensation premium is based primarily on the estimated annual payroll. However, many times, we receive concerns from our clients who were billed an additional premium at audit. Many times this additional premium is due to improper payroll reporting during the workers’ compensation renewal. It is important to be as accurate as possible when submitting your workers’ compensation renewal information or the carrier will bill your organization with an additional premium at audit.
The following is a quick review of payroll calculation. Payroll includes, but is not limited to the following:
- Hourly and Salaried payroll
- Holiday Pay
- Sick Pay
- Vacation Pay
- Piece Work
- Market Value of Gifts
- Profit Sharing
- Meals and Housing For Employees
- Allowances for Hand Tools
- Expense Allowances not based on receipts
- Deferred Compensation Plans
Not included in the workers’ compensation payroll: Tips, Overtime Excess, Severance Pay, Expense Reimbursement based on Receipts and third-party sick pay
Another area that is critical to managing your premium has to do with Independent Contractors. To avoid this premium charge, independent contractor’s (1099’s) should provide your organization with proof of their workers’ compensation insurance (at the very minimum). If the independent contractor does not carry workers compensation insurance, the insurance carrier may consider them as employees for premium audit purposes and will charge a corresponding premium. Determination is made on a case-by-case basis.
Having accurate payroll information and documentation will go a long way toward streamlining payroll reporting and premium. If you have any questions, call us. We are here to help.