Payroll Concept

How to Calculate Payroll

The purpose of the audit is to verify actual payroll figures to ensure that the appropriate amount of premium was contributed.

Audits will be performed in July and August by IMWCA’s contracted firm, Information Providers, Inc. (IPI). IPI works with IMWCA to conduct the workers’ compensation premium audits on an annual basis. IPI has been a leading provider of premium audit information services, serving insurance companies throughout the nation. IPI’s field analysts and auditors are continually retrained and reviewed for proficiency in order to ensure that standards for this very critical insurance operation remain at their highest.

Payroll: Not just wages

Payroll is only a part of remuneration. Many other items are covered under remuneration, some of which are not what is normally considered compensation. In dealing with workers’ compensation, consider payroll as money or anything used as a replacement for money. For example, NCCI includes the following as remuneration (this list is not exhaustive).

What’s Included:

  • Payroll – wages and salaries
  • Commissions and draws against commissions
  • Bonuses
  • Extra pay for overtime
  • Holiday, vacation and sick pay
  • Payment by employer into statutory insurance and/or pension plans…read Social Security
  • Payment for piecework, profit sharing or other incentive plans
  • Payment, compensation or allowance for tools used in work
  • Value of rental of apartment or house, provided for an employee
  • Value of other lodging an employee receives as part of their pay
  • Value of meals to employees as part of their pay
  • Value of store certificates, credits or merchandise or other money substitutes received as part of pay
  • Payments for salary reduction, employee savings plans etc as made through employee
  • Authorized salary reduction
  • Davis-Bacon pay or pay from other prevailing wage law
  • Annuity plans
  • Expense reimbursement to employees where employer records do not indicate a valid business expense
  • Expense reimbursement to employees where employer records do not indicate a valid business expense

NCCI does not include the following in remunerations (list is not exhaustive):
  • Tips and other gratuities received by employees
  • Payments by an employer to group insurance or group pension plans for employees – as allowed by NCCI rules
  • Payments by an employer into third party trusts for the Davis-Bacon Act or similar prevailing wage law qualified trust (Be careful with this one, health, welfare and fringe benefits ARE considered remuneration, see above.)
  • The value of special rewards for individual invention or discovery
  • Severance payments except for time worked
  • Payments for active military duty
  • Employee discounts on items purchased from the employer
  • Supper meal payments for late work
  • Uniform allowances
  • Certain employer provided perks such as
    • Use of company vehicles
    • Airline flights or use of private plane
    • Incentive travel
    • Discounts for services
    • Club memberships
    • Tickets to entertainment events

Overtime means those hours worked for which there is an increase in the rate of pay:
  1. For work on any day or in any week in excess of the hours normally worked.
  2. For hours worked in excess of 8 hours in any day or 40 hours in any week.
  3. For work on Saturdays, Sundays or holidays.

Note: Forms of incentive pay commonly referred to as “shift differential” or “premium pay” associated with working other than normal day shift hours during the standard workweek are not to be considered overtime. In the case of guaranteed wage agreements, overtime means only those hours worked in excess of the number specified in such agreement.

Exclusion of Overtime Payroll

Payroll Records – The extra pay for overtime shall be excluded from the payroll on which premium is computed as indicated in (1) or (2) below, provided the insured’s books and records are maintained to show overtime pay separately by employee and in summary by classification. (i.e. 5506, 9402, etc).

  1. If the records show separately the extra pay earned for overtime, the entire extra pay shall be excluded.
  2. If the records show the total pay earned for overtime (regular pay plus overtime pay) in one combined amount, and time and one/half is paid for overtime, one-third of this total pay shall be excluded. If double time is paid for overtime and the total pay for such overtime is recorded separately, one-half of the total pay for double time shall be excluded.

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