Premium Audit: Definition of Payroll
The definition of payroll taken from the Basic Manual For Workers Compensation and Employers Liability Insurance is as follows:
For purposes of this manual, payroll means money or substitutes for money.
- Wages or salaries (including retroactive wages or salaries).
- Total cash received by an employee for commissions and draws against commissions.
- Bonuses including stock bonus plans.
- Extra pay for overtime work except as provided in Rule 2-C-2.
- Pay for holidays, vacations, or periods of sickness.
- Payment by an employer of amounts that have been withheld from employees to meet statutory obligations for insurance or pension plans such as the Federal Social Security Act or Medicare.
- Payment to employees on any basis other than time worked, such as piecework, profit sharing or incentive plans.
- Payment or allowances for hand tools or hand-held power tools used by employees in their work or operations for the insured. These tools may be supplied directly by the employee or to the employee through a third party.
- The rental value of an apartment or house provided to an employee based on comparable accommodations.
- The value of lodging, other than an apartment or house received by an employee as part of their pay to the extent shown in the insured’s records.
- The value of meals received by employees as part of their pay. This must be shown in the insured’s records.
- The value of store certificates, merchandise, credits or any other substitute for money received by employees as part of their pay.
- Payments for salary reduction, employee savings plans, retirement or cafeteria plans (IRC 125) that are made through employee-authorized salary reduction from the employee’s gross pay.
- Davis-Bacon wages or wages from a similar prevailing wage law.
- Annuity plans.
- Expense reimbursements to employees to the extent that an employer’s records do not confirm that the expense was incurred as a valid business expense.
Exception:When it can be verified that the employee was away from home overnight on the business of the employer, but the employer did not maintain verifiable receipts for incurred expenses, a reasonable expense allowance, limited to a maximum of $30 per day, is permitted.
- Payment for filming of commercials excluding subsequent residuals that are earned by the commercial’s participant(s) each time the commercial appears in print or is broadcast.
- Tips or other gratuities received by employees
- Payments by an employer to group insurance or group pension plans for employees, other than those covered by Rule 2-B-1-f and Rule 2-B-1-m.
- Payments by an employer into third-party trusts for the Davis-Bacon Act or a similar prevailing wage law provided the pension trust is qualified under IRC Sections 401(a) and 501(a).
- The value of special rewards for individual invention or discovery.
- Dismissal or severance payments except for time worked or vacation accrued.
- Payments for active military duty.
- Employee discounts on goods purchased from the employee’s employer.
- Expense reimbursements to employees to the extent that an employer’s records confirm that the expense was incurred as a valid business expense.
Reimbursed expenses and flat expense allowances (except for hand or hand-held power tools) paid to employees may be excluded from the audit only if all three of the following conditions are met:
- The expenses are incurred for the business of the employer.
- The amount of each employee’s expense payments or allowances are shown separately in the records of the employer.
- The amount of each employee’s expense reimbursement is a fair estimate of the actual expenses incurred by the employee in the conduct of his/her work.
Note: When it can be verified that the employee was away from home overnight on the business of the employer, but the employer did not maintain verifiable receipts for incurred expenses, a reasonable expense allowance, limited to a maximum of $30 per day, is permitted.
- Supper money for late work.
- Work uniform allowances.
- Sick pay paid to an employee by a third party such as an insured’s group insurance carrier that is paying disability income benefits to a disabled employee.
- Employer-provided perks such as:
- Use of company-provided automobiles
- Airplane flights
- Incentive vacations (e.g., contest winners)
- Discounts on property or services
- Club memberships>
- Tickets to entertainment events
- Employer contributions to employee benefit plans such as:
- Employee savings plans
- Retirement plans
- Cafeteria plans (IRC 125)
These include contributions made by the employer, at the employer’s expense, which are determined by the amount contributed by the employee.
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