As an insurance agent, I get a lot of questions from my clients about the specifics of what is considered payroll for workers compensation. So; here are a few expenses that you can expect to include as payroll, and some that you can’t.
Overtime, or Double-time. Just because you are required by law to increase the pay after your employee works overtime doesn’t mean it is a higher risk to the insurance company. However, prevailing wage increases do count (see below).
Severance or dismissal pay. Giving an employee who is no longer going to be with you a parting gift is not considered payroll.
Tips. This is always welcome news, especially in the food service industry where tips are a major source of income for employees.
Meals. If the meal is provided free to the employee, it is not considered payroll. However, if your employees purchase meals from you, and the cost of meals is deducted from their paychecks, then you do have to include meals as part of payroll.
Certain Discounts, Allowances and Reimbursements. Employee discounts, laundry, travel, or uniform allowances, school tuition or school tuition reimbursement, auto expense reimbursements, or an auto furnished for your employee.
Employer’s Contribution to Specific Benefits. The amount you pay to provide benefits to your employees, such as a deferred 401k, pension, retirement, stock purchase, or savings plan, and/or group dental, vision, and health insurance is not considered payroll. Note, however, that your employees’ own contribution to their benefits are going to be considered payroll (see below).
Employer’s and Employee’s Contribution to Cafeteria Plan Benefits. The amount you pay to provide benefits toward a qualified Section 125 Cafeteria Plan is not considered payroll. The amount your employees deduct from their own paycheck to contribute to the Cafeteria Plan is also not going to be considered payroll.
Bonuses, profit sharing, quota prizes. No one’s happy about this one, but it’s true that you cannot deduct these expenses from your payroll.
Prevailing Wage. This is particularly pertinent to contractors doing prevailing wage jobs. When you increase your wages for these jobs, you must base your workers comp premium on increased payroll.
Commissions or Draws. Higher earning employees will always cost more in workers comp expenses. Fortunately, the rates for sales persons is low.
Paid Sick Days, Paid Vacation, and Paid Time Off. Even though the employee is not on the job, you still have to include the payroll attributed to these off days.
Housing/Lodging Value. This is only applicable if the accommodations are paid in lieu of wages. Also, depending on which workers comp class code you fall under, you may have to include lodging as payroll regardless of whether it is given in lieu of wages.
Gifts. Only if given as a substitute for money.
Medical or Military Leave, Jury Duty. While they are on leave, you are still paying them, and you must include their payroll for that time period.
Attendance at a conference, seminar, or special trade school. You can’t deduct the time away from the job. You can, however, exclude the extra expenses to get them to and from the seminar, as well as hotel accommodations.
Employee’s Contribution to Benefits. The amount your employees’ paychecks are deducted to contribute to the benefits you provide, such as a deferred 401k, pension, retirement, stock purchase, or savings plan, and/or group dental, vision, and health insurance cannot be excluded from payroll, unless it is part of a Section 125 Cafeteria Plan (see above).
Subcontractors and Independent Contractors who may be considered employees, and Casual Labor. Whether you have to consider the amounts paid to them as payroll is going to be dependent on whether they are considered employees or not, which is a subject for a different post. If they are not considered employees, you don’t have to include them in your payroll. But if they are considered employees, you do.
There are a few more less-frequently-occurring situations that could be added to this list, but for the sake of keeping this post at a reasonable length, I didn’t mention them. If you want to know more – please reach out!
Gillespie Insurance Services helps people and businesses in California, Arizona and Nevada.