Payroll (Not Remuneration)Payroll (Not Remuneration)NCCI Inclusions and ExclusionsNCCI Inclusions and ExclusionsState Exceptions as they apply to IAAW StatesState Exceptions as they apply to IAAW States

Shari Balazs – Overland Solutions

Kurt Lang – Safeco Insurance

Basic Manual-2001 EditionBasic Manual-2001 Edition

Rule 2 --- Premium Basis and Payroll Allocation

A. PREMIUM BASIS Effective 01 Jul 2001

Premium is calculated on the basis of the total payroll paid or payable by the insured……..

Paid

Payable (Earned)

B. Payroll B. Payroll Effective 01 Jul 2001 Effective 01 Jul 2001

1. Includesa. Wages or Salaries, including retroactive wages or salaries.

b. Commissions and draws against commissions

c. Bonus including stock bonus plans

Stock BonusStock Bonus

Stock Bonus – a bonus paid with shares of corporate stock.

The stock shares are considered a substitute for money and their value is to be included

Stock Option PlanStock Option Plan Stock Option Plan – an option is the right to buy a specified

number of shares of stock at a set price. The value of the option is the difference between the current price of the stock and the price the employee paid for the stock.

Awarding of stock options is no longer just for officers, it is also given to employees.

A stock option is considered an employer provided perk which is excluded from Payroll.

Pay for holidays, vacations, or periods of Pay for holidays, vacations, or periods of sicknesssickness

Vacation pay is excluded in OR, holiday, vacation and sick pay excluded in SD.

Piecework, Profit sharing or incentive plansPiecework, Profit sharing or incentive plans

Piecework – employee is paid a certain amount for each piece of work produced. By working efficiently, an employee could earn more money than by working on an hourly basis.

Profit Sharing – employer distributes monies based on the profit of the company. Distribution can be based on a %, years of service, or some other method. (Profit sharing is excluded in OR based on 3 criteria.)

Incentive Plan – similar to piecework plan, except for increase in an employee’s hourly rate of pay after a preset quota has been completed. This is not overtime pay so all incentive wages are included.

Payment or Allowances to Employees for Hand or Payment or Allowances to Employees for Hand or Power Tools furnished by the employeePower Tools furnished by the employee

In some trades (logging) it is customary to grant a monetary tool allowance to employees who furnish their own power tool for use in their work for their employer. Such payments or allowances are to be included.

The rental value of an apartment or house provided to The rental value of an apartment or house provided to an employee based on comparable accommodations.an employee based on comparable accommodations.

Rental Values – the employee is provided an apartment or house at no charge or at a substantially reduced amount. This value of housing and paid utilities must be established on the basis of market value based on actual rentals of similar housing in the vicinity.

Clergy, apartment manager, maintenance person for an apartment or condominium complex, manager for a public storage facility.

(Not included in CA unless classification phraseology specifically includes lodging or wages are reduced by the an amount equal to the value of such lodging.)

(The value of lodging not included in AZ.)

(Rental value of an apt or house subject to a minimum of $150/month in NV.)

The value of meals received by employee as The value of meals received by employee as part of their paypart of their pay

This must be shown in the insured’s records

Not included in CA unless classification phraseology specifically includes meals or the wages are reduced by an amount equal to the value of such meals.

Not applicable in AZ.

MT & NV set minimums per day and week.

Salary Reduction PlansSalary Reduction Plans

No deductions for payments by employees to employment savings, retirement or cafeteria plans. The typical salary reduction plan has a specific % of the employee’s wages going into one of these plans, thereby lowering their taxable earnings.

The amount by which an employee’s salary is reduced to fund the

fringe benefit portion of a cafeteria plan qualified under Section 125 of the IRS code shall not be included in the payroll – CA RULE.

NEW FEATURE – the employer’s records are to be maintained to show separately such amounts by employee and in summary by type of operation performed.

Davis – Bacon WagesDavis – Bacon Wages

Included if the contractor pays the base wage and prevailing wage as salary.

Annuity PlansAnnuity Plans

The money deducted from an employees salary for the purchase of the annuity contract is chargeable – similar to salary reduction plans.

EXCLUSIONSEXCLUSIONS Tips are usually not paid by the employer.

(MT does not allow reportable tips to be excluded.)

Banquet tips or voluntary gratuities – NCCI recently ruled that for tips to be excluded they must be freely given by the customer and not controlled by the employer.

Banquet tips are not freely given and paid by the employer so they are not excludable.

Private clubs that solicit contributions from its members (voluntary or otherwise) to distribute to the employees, these monies are considered bonuses and not tips and are not excludable.

CA States the following: Tips, voluntary or prepaid, received from other than the employer, or one acting on behalf of the employer are not included in the payroll.

Extra Pay for Overtime WorkExtra Pay for Overtime Work(Overtime pay is not applicable in UT & NV)(Overtime pay is not applicable in UT & NV)

Does not apply to Premium Pay and Guaranteed Wages.

Other ExclusionsOther Exclusions

Payment into a 3rd party trust under the Davis Bacon Act.

Dismissal or severance payments.

3rd party sick pay or disability pay.

Expense ReimbursementsExpense Reimbursements

Incurred in business of the employer Shown separately in their records Is a fair estimate of actual expenses occurred.

If verified business expenses occur but not shown in records then a reasonable expense allowance is permitted, to a maximum of $30 per day.

($75 day maximum allowed for OR & AZ)

Work Uniform AllowanceWork Uniform Allowance

Likely with airline pilots who receive money to keep their uniforms clean.

Employer Contribution to Employee Employer Contribution to Employee Savings Plans or Retirement PlansSavings Plans or Retirement Plans

Monies paid to the employee’s 401K or retirement account is excluded

(doesn’t show up under the employee gross pay).

Payroll Inclusions Not Discussed in Payroll Inclusions Not Discussed in the NCCI Manualthe NCCI Manual

Accumulated Sick or Vacation Pay – usually paid at the employee’s termination or retirement.

Safety Bonus Pay – (except for OR & NM)

Travel Time Payments – wages paid for the time an employee spends traveling from his residence to a job site or from job site to job site.

Bereavement or Jury duty pay

Payroll Exclusions Not Discussed in Payroll Exclusions Not Discussed in the NCCI Manualthe NCCI Manual

Imputed pay ( personal car usage, moving expense, life insurance premium over $50,000.)

Earned income credit – refund from government paid by the employer to low wage earners who qualify.

Unanticipated Bonus & Profit Sharing (OR only) See Special OR page in User’s Guide for explanation of the specific criteria..

General Liability InclusionsGeneral Liability Inclusions(That Differ from Workers Compensation)(That Differ from Workers Compensation)

Payroll of Leased Workers – if payroll is not available the full contract price should be used as payroll.

Fees paid to Employment Agencies.

General Liability ExclusionsGeneral Liability Exclusions(That Differ from Workers Compensation)(That Differ from Workers Compensation)

The payroll of clerical office, salespersons, drivers & their helpers, draftspersons and aircraft pilots & co-pilots.

General Liability ExclusionsGeneral Liability Exclusions(That Differ From Workers Compensation)(That Differ From Workers Compensation)

Washington Payroll LimitationWashington Payroll Limitation For premium computation purposes, use the average

weekly payroll of each employee. Do not use any part of an employee’s average weekly payroll which exceeds $600.

EXAMPLE:

1st week employee’s gross wage $1,100.

2nd week employee’s gross wage $400.

3rd week employee’s gross wage $500.

Total gross wage $2,000.

Multiple gross wage by weeks worked $1,800.

Excess payroll $200.

SummarySummaryMain Points to RememberMain Points to Remember

Audit on a paid basis.

Know the difference between a stock option and stock bonus.

Know the difference between sick pay, PTO, 3rd party sick or disability pay.

Pursue the market value of similar housing when making a charge for the rental value of an apartment or house.

The employee’s 125 earnings are excluded only in CA and now require summarization.

SummarySummaryMain Points to RememberMain Points to Remember

Be prepared for Davis Bacon related questions when auditing contractors.

Inputted pay is for taxation purposes and is not included.

Know the criteria for excluding Unanticipated/Profit Sharing Bonuses in OR.

Temporary employees are included for GL payroll based audits. (Under their direction & control)

$600 rule in WA for GL payroll based audits applies after figuring the total number of weeks worked.

SummarySummaryMain Points to RememberMain Points to Remember

Banquet tips are no longer excluded except for CA.

For salary reduction plans,(retirement savings, 401K) determine whose money is it? If the employee’s money then usually it is included. If the employer’s money it is usually not paid directly to the employee and is excluded

Don’t commit to a deduction you are not sure of; better to advise the insured you will confirm upon research.