WHY USE PAYROLL?

An ideal premium base should be an accurate measure of the extent of the loss exposure insured. It should result in a higher premium as the loss exposure increases and a lower premium as the loss exposure decreases.

In addition to reflecting the extent of the loss exposure insured, an ideal premium base would be simple to determine and difficult to manipulate. A simple premium base reduces expenses for the employer and the insurance company. A premium base that is difficult to manipulate will ensure all employers pay their appropriate share of the premium.

Payroll, for Workers’ Compensation purposes, is different than for any other purpose. Workers’ Compensation Payroll is the total remuneration paid or payable by the employer for the services of employees covered by the policy.

• Holiday Pay
• Vacation Pay
• Sick Pay
• Commissions
• Bonuses
• Rental Value, the rental value of an apartment or house provided for an employee.
• Payment or allowance for tools
• Rental value of lodging or meals
• IRS Section 401K Plan, all deferred salary is part of payroll.
• IRS Section 125 Plans, when an employee uses a part of his/her salary to buy group insurance, the wages prior to the deduction are included as payroll.
• Overtime Pay, except for premium overtime as described in "Is There Payroll That Can Be Excluded".
• Payment to Sub-contractors - In Massachusetts, New Hampshire and Vermont, the employees of a subcontractor are considered employees of the general contractor and their payroll is included unless the subcontractor has Workers’ Compensation coverage in effect. IIn Maine, any person who is independent is not included.

Is There Any Payroll That Can Be Excluded?

• Premium Overtime, the increase in pay received by an employee for work in any day or week in excess of the number of hours normally worked.
• Severance Pay, however, all earned holiday, sick, and vacation pay is still included
• Tips
• Payroll Limitation, the amount of payroll included for executive officers is subject to a cap. All payroll over this cap is excluded.
• Tools
• Expense Allowances, can be excluded if they are qualified business expenses.
• Wages While on Active Military Duty
• The Value of Special Reward for Individual Invention or Discovery
• Certain IRS Inclusions, there are some types of benefits that are included for tax purposes but excluded for Workers’ Compensation purposes. These are the personal use of a company car, relocation expenses, third-party sick pay, the value of group life insurance over $50,000, tuition reimbursement, club memberships, and aircraft travel.

How Do I know If Certain Expenses Can Be Excluded?

• Reimbursed expenses and flat expense allowances paid to employees may be excluded form the audit, provided that all three of the following conditions are met:
• The reimbursed expenses were paid upon the business of the employer.
• The amount of each employee’s expense payment is shown separately in the records of the employer.
• The amount of each expense reimbursement approximates the actual expenses incurred by the employee in the conduct of the work.

I Have Other Questions. Where Do I Call?
Please contact MassOne Insurance at (413) 773-9913

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