RISK SOLUTIONS—A Workers’ Compensation Insurance rule that many businesses may not be aware of is that you only have to report 2/3 of your overtime total when calculating your payroll for the year.
When you buy your Workers’ Compensation policy or renew it, you provide an “estimated payroll” for the year. Your premium (or cost) is based on this estimated amount.
Then, after your policy period, an auditor will request records showing the actual payroll paid out.
According to the difference in your estimated amount and the real amount, your company is either going to have to pay more premium or they’ll receive a refund check.
Regular & Overtime Payroll Divisions
When you figure your payroll, have a column for regular payroll and then another column for overtime.
Add up your total payroll and then your total overtime payroll.
Then divide your overtime payroll by 2/3rds. (Note: Figure 66.66 percent.)
That is the amount you will add to the regular payroll for the final total.
For example, if your total payroll was $100,000 and your overtime pay was $15,000, then you would add 2/3 of the $15,000 — which is $10,000 — to obtain a “chargeable payroll” amount of $110,000.
Here’s a sample (BELOW). Please note that office employees and fleet drivers are in two different categories. You will have different Workers’ Compensation classifications for employees according to their jobs and will pay different amounts for insurance based on those roles.
Based on the table shown above, you would report $328,716 to your Workers’ Compensation insurance carrier as your total payroll.
If you had not figured the correct percentage of overtime earnings, you would be paying a higher rate based on nearly $4,000 MORE of payroll.
And since drivers are classified in a more-costly category than office employees, that overpayment amount would have been even higher. (See links at the end of this post for help with correctly classifying employees.)
Take Away The Bonus Amounts
Your auditor or insurance agent may have already made you aware of this Workers’ Compensation savings opportunity. I only recently learned about this rule myself, so I asked a Risk Manager to explain more about it.
“In order to work overtime, the law requires companies to pay time-and-a-half,” said Walter Haney, Sr., of American Risk Managers.
“When you are reporting your total for Workers’ Compensation, you are paying an amount based on the straight-pay time, but taking away the bonus (or overtime) amount.
“You report the straight time, but you take away the extra. You should do this for holiday pay, too, which is sometimes double the regular pay.”
Mr. Walter also said that a good way to double-check your figures is to compare this final total with your tax records.
“Take your tax records and compare the net payroll,” he said. “You are only required to report the net amount for your Workers’ Compensation premium.
“An auditor is going to do their own analysis. But you should also review all these figures for yourself. If you’re writing down the entire payroll without deducting a percentage of the overtime total, you’re going to pay more than you should for Workers’ Compensation.”
You can find more information on Workers’ Compensation problems, solutions and savings by clicking on the following links:
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