It’s important for start-up business and new ventures to remember that employers, with the exception of self-employed individuals who do not have employees, must obtain workers’ compensation insurance. This requirement applies regardless of an employee’s full-time or part-time status, whether he or she is a temporary or permanent hire. Should an employee get injured on the job, this insurance covers medical and other expenses related to his or her injury. What many don’t know is that estimating your payroll, which is necessary for calculating workers’ compensation premiums, involves much more than just employee wages.
Payroll and Your Workers’ Compensation Insurance
When you hire a new employee or increase their pay raises, it’s natural to expect your workers’ compensation premiums to increase. After all, there is a direct correlation between your business’s payroll and the premium. However, it is important to remember, that overtime wages are excluded in the workers’ compensation calculations for wages – as long as the payroll records are kept to show overtime pay separately, by employee and in summary by classification. In simple terms, if you keep adequate records of overtime wages, you are only required to pay premium on payrolls related to regular time.
Payroll isn’t the only number taken into consideration, however. Estimating workers’ compensation insurance premiums include everything from wages, bonus time, sick time, and more. Your premium calculations include the following as remuneration:
- Wages or salaries
- Total cash received by employees for commissions
- Bonuses including stock bonus plans
- Extra pay for overtime work
- Pay for holidays, vacations, or periods of sickness
- Payments to employees on any basis other than time worked, e.g., piecework, profit sharing, or incentive plans
- Rental value of an apartment or house provided for an employee
- The value of lodging received by employees as part of their pay
- Annuity plans
- Payments for salary reduction, employee savings plans, retirement, or cafeteria plans
The exclusions in payroll for workers’ compensation insurance include:
- Tips and other gratuities received by employees
- Payments by an employer to group insurance or pension plans
- The value of special rewards for individual invention or discovery
- Dismissal or severance payments, apart from time worked or accrued vacation
- Payments for active military duty
- Employee discounts on goods purchased from employer
- Dinner money for late work
- Work uniform allowances
- Employer-provided perks such as use of an automobile, an airplane flight, club memberships, and tickets to entertainment events.
While paying additional premiums after your policy year has passed isn’t ideal, determining your actual payroll for the year is a fundamental part of calculating accurate workers’ compensation premiums and, therefore, accurate coverage. Tracking payroll estimates to actuals and making adjustments along the way are important measures to ensure you are not overpaying. Additionally, they allow you to avoid end of policy term surprises and better manage your cash flow should you need to pay for any increase in your premium. Anytime you hire new employees, give raises, or promote employees into different roles, make sure to take the time to revisit your payroll and update your coverage accordingly.
There are a lot of things to consider when beginning a new venture or start-up company, and with insurance being one of your largest expenses, it’s important to know how to manage those costs. The workers’ compensation experts at PMC can help.
For more information about workers’ compensation for a new venture or start-up, contact us today at 781-449-7744 or info@pmcinsurance.com.
