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)
Commissions
Bonuses
Holiday Pay
Vacation Pay
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:
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.
Overtime 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.