Hey, that’s a BONUS not regular Pay!

I often get the question on what’s not chargeable by an auditor, but what about a simple list of what they can charge for?

Here is a list of what IS chargeable under a workers’ comp audit.  There are variations but this is a good starting point of what is included in an insurance audit!

If you need to refer back to what’s not chargeable, check out one of our prior posts here.  

B. Payroll


For purposes of the NCCI Basic Manual, payroll means money or substitutes for money.

1. Includes:


a. Wages or salaries (including retroactive wages or salaries).
b. Total cash received by an employee for commissions and draws against commissions.
c. Bonuses including stock bonus plans. (Refer to Rule 2-D-3.)
d. Extra pay for overtime work except as provided in Rule 2-C-2.
e. Pay for holidays, vacations, or periods of sickness. (Refer to Rule 2-G-3 for allocation of payroll for employees subject to more than one classification code.)
f. 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.
g. Payment to employees on any basis other than time worked, such as piecework, profit sharing or incentive plans.
h. 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.
i. The rental value of an apartment or house provided to an employee based on comparable accommodations.
j. 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.
k. The value of meals received by employees as part of their pay to the extent shown in the insured’s records.
l. The value of store certificates, merchandise, credits or any other substitute for money received by employees as part of their pay.
m. 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.
n. Davis-Bacon wages or wages from a similar prevailing wage law.
o. Annuity plans.
p. 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.

Here’s a quick glance at California’s Included and Excluded payroll guidelines. https://www.wcirb.com/guide-to-workers-compensation/standard-classification/pay-remuneration

Payroll or Remuneration

Special Announcement Regarding Payroll and COVID-19

In response to the COVID-19 crisis, we have initiated work with our stakeholders to identify potential regulatory changes with respect to payroll reporting and the classification of payroll and claims. One immediate focus is on assessing what changes may be appropriate to address the following increasingly prevalent situations:

  1. Policyholders paying furloughed employees: In other words, paying employees whose job has been suspended due to the COVID-19 crisis. Addressing this requires a review the USRP requirement that, for basis of remuneration purposes, an employee’s payroll includes “gross wages, salaries, commissions, bonuses, vacation, holiday and sick pay, overtime payments, the market value of gifts, and all substitutes for money earned during the policy period.”
  2. Employees working from home with significantly different job duties: In some instances, this may include shifting employees who are typically engaged in non-clerical operations to roles that are exclusively clerical in nature due to the limitation of the work from home environment. Addressing this requires a review the USRP requirement that “It is not permissible to divide a single employee’s payroll, within a single policy period, between a Standard Exception classification and any other classification with the exception of a single permanent job reassignment.”

The WCIRB is working to determine the scope of any emergency regulatory changes to be proposed to the California Insurance Commissioner. We anticipate completing this time sensitive effort within the next few weeks.

Payroll or Remuneration

Once classification assignments have been made, payroll data is reported to the WCIRB based on these assignments. One of the primary components of the rate that an employer pays for its workers’ compensation insurance policy is determined by the classification code(s) to which that payroll is assigned. Also, the items that constitute payroll when determining the basis of workers’ compensation insurance premium are quite specific. Detailed information about what constitutes payroll, often referred to as remuneration, can be found in the Filings and Plans section.

When determining the basis of premium, the following are included as payroll:

  • Gross wages
  • Salaries
  • Commissions
  • All bonuses
  • Most profit sharing
  • Vacation, holiday and sick pay
  • Overtime (“straight time” portion only)
  • The market value of gifts
  • Automobile allowances (less reimbursement for documented expenses)

The following items are excluded from payroll when determining the basis of premium:

  • Meals or lodging (unless the classification phraseology specifically includes them or they are provided in lieu of wages)
  • Tips
  • Overtime excess pay (the increase above the regular hourly wage)
  • Severance pay (except for accrued vacation, sick pay, commissions and bonuses)
  • Employer contributions to qualified insurance, stock or retirement plans
  • Stock options
  • The value of an automobile furnished to an employee 

In addition, the following are not included as payroll for premium computation:

  • Employee discounts for merchandise
  • Residual payments for commercials
  • A uniform allowance

Payroll for workers’ compensation insurance purposes is not necessarily the same as the Internal Revenue Service definition of payroll.

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