Payroll and/or Remuneration and More
This article is the second in our series on types of remuneration (payments and goods given to workers) and how they affect the premium on your workers' compensation policy.
Your friend just told you that he thinks he found a way to pay less workers’ compensation premium for his company: he will just pay his employees with bonuses, rather than normal pay! But you are unsure: does this really reduce your premium? What types of pay are included when your premium is calculated?
The last article in our series touched on some specific types of payments that are related to the COVID-19 pandemic. We mentioned the term remuneration. Now is a good time to explain in a bit more detail.
What is “Remuneration”?
Simply put, remuneration is what you give workers in exchange for their labor. This can also be benefits other than money. We’ll discuss non-monetary remuneration in our next article. For now, let’s talk about the actual money that you pay your workers.
Types of remuneration that involve money:
There are several types. Here’s a list of the most common ones:
Gross Wages that you pay to your employees
Overtime Pay (with one exception)
Allowances for Tools
Payments to Uninsured Subcontractors (with exceptions)
Some of these are easy to understand. Others can trick you. Let me explain in more length.
Gross wages are the pay that you give to your employees. You report it to both the State and the Federal governments each quarter. The gross wages—that is, the amount before taxes are taken out—are included in your premium calculation. This also includes any payments for salary reduction, employee savings plans, retirement, or cafeteria plans (IRC125) that are made through employee-authorized salary reduction from the employee’s gross pay.
The amount you pay to employees for overtime hours is included, at the normal hourly rate. In other words, you pay premium on employees’ normal rate for every hour they work—you just don’t pay the extra for the higher overtime rate.
Let’s consider an example: Joe worked 41 hours for you last week. He gets paid $10 per hour, so you paid him gross pay of $415 for the week—this is $400 for the 40 hours at $10 per hour, and since you pay him an overtime rate of time-and-a-half, you paid him $15 for the forty-first hour. In this example, your premium calculation would only include $10 for Joe’s forty-first hour, because it still uses Joe’s normal hourly rate. So, Joe’s pay would be included in your premium calculation as $410, rather than the $415 that Joe was paid.
If you have salespeople who are paid commissions on the accounts that they sign for your company, the commissions are included in your premium calculation.
You may choose to pay bonuses to your employees because they’re appreciated, or it’s Christmas, or the end of the year. In our opening example, your friend was mistaken—these bonuses are included in your premium calculation.
Wages you pay to employees for holidays are included.
Money that you pay to employees for time they’re off on vacation are included. Also, if you pay a terminated employee for the value of vacation that they earned and didn’t use, that pay is also included.
Allowances for Tools:
You may give employees an allowance if they use their own hand- or power-tools to work for you. That allowance is also included in your premium calculation.
Payments to Uninsured Subcontractors:
All of the previous types of pay were for employees. Now, let’s talk about subcontractors.
First, there is a difference between a subcontractor who has workers’ compensation coverage for his company, and one who has a workers’ compensation exemption. We’ll talk first about coverage: if a subcontractor does not have their own workers’ compensation coverage, your payments to them CAN be included in your premium calculation. These payments may be reduced by removing payments for materials, but you will need to keep good records for these payments to be removed.
If a subcontractor has workers’ compensation coverage through a leasing company, then only the workers that you report to the leasing company are covered under their policy. Payments to workers NOT reported to the leasing company are included in your own premium calculation.
Finally, a subcontractor’s officer may have a workers’ compensation exemption. Exemptions do not exempt the subcontractor’s company—they only apply to the individual officer who files the exemption. Be very careful when using subcontractors who have exemptions without a workers’ compensation policy, since their employees are NOT covered. Payments to the subcontractor may be included in your own premium calculation if you can’t establish that they have no employees.
The above types of money—“remuneration”—are included when your premium is calculated. If you keep good records, though, you may be able to reduce the amount that is included. Feel free to call us for more information. And watch for our future article on remuneration that isn’t money.
Let Work Comp Associates make your policy easy to manage and help you save money.