Our previous post, What Payrolls Do I Need to Have for an Audit
, goes through all types of compensation that an auditor will include at the audit, but what about those payrolls that are not chargeable
on an audit?
The complete list of “Excluded Remuneration”
can be found here.
Pay close attention as some have huge implications, like tips in the restaurant industry! In this case, tips are reported on the quarterly unemployment reports, but are not chargeable at the audit!
(Additional Rules: AR, FL, IL, IN, KS, KY, LA, ME, NM, OK, OR, SD, UT) (Exceptions: AK, CO, CT, KS, MD, MS, MT, NM, NV, OR, TN, VA) (User’s Guide: FL, KY)
a. Tips or other gratuities received by employees.
b. Payments by an employer to group insurance or group pension plans for employees, other than those covered by Rule 2-B-1-f and Rule 2-B-1-m.
c. Payments by an employer into third-party trusts for the Davis-Bacon Act or a similar prevailing wage law provided the pension trust is qualified under IRC Sections 401(a) and 501(a).
d. The value of special rewards for individual invention or discovery.
e. Dismissal or severance payments except for time worked or vacation accrued.
f. Payments for active military duty.
g. Employee discounts on goods purchased from the employee’s employer.
h. Expense reimbursements to employees to the extent that an employer’s records confirm that the expense was incurred as a valid business expense.
Reimbursed expenses and flat expense allowances (except for hand or hand-held power tools) paid to employees may be excluded from the audit only if all three of the following conditions are met:
(1) The expenses are incurred for the business of the employer
(2) The amount of each employee’s expense payments or allowances are shown separately in the records of the employer
(3) The amount of each employee’s expense reimbursement is a fair estimate of the actual expenses incurred by the employee in the conduct of his/her work
Refer to User’s Guide for an example.
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 for incurred expenses, a reasonable expense allowance, limited to a maximum of $30 per day, is permitted.
i. Supper money for late work.
j. Work uniform allowances.
k. Sick pay paid to an employee by a third party such as an insured’s group insurance carrier that is paying disability income benefits to a disabled employee.
l. Employer-provided perks such as:
• Use of company-provided automobiles
• Airplane flights
• Incentive vacations (e.g., contest winners)
• Discounts on property or services
• Club memberships
• Tickets to entertainment events
Here’s California’s list of included and excluded remuneration.
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:
- 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.”
- 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
When determining the basis of premium, the following are included as payroll:
- Gross wages
- 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)
- 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.