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What Wages Are Covered By Workers’ Comp?

Why should you pay more when you don’t have to? Overpaying for anything is never a smart thing.

Knowing which wages are subject to workers’ compensation insurance can save you money on workers’ comp premiums. If you fail to record all wages that are covered by workers’ comp, you will have to pay a large bill when your policy expires. But why? Despite that, you are underpaid for workers’ comp coverage.

In other words, what wages are covered by workers’ comp?

Here’s what you need to know about workers’ comp wages if you don’t want to pay a substantial lump sum.

What Are Wage Classifications?

To understand why this information is so relevant when it comes to calculating your workers’ comp premiums, let’s outline the wages on your payroll that are included (and excluded). 

When you buy workers’ comp insurance, you are typically provided with an estimated premium payment. Premiums are typically calculated using varying factors such as wages. Paid time off and bonuses are also considered.

What Wages Are Covered by Workers' Comp?

Knowing the different types of wages subject to workers’ comp allows you to calculate your premiums accordingly:


-Salary and wages including retroactive pay 


-Paid overtime at the employee’s base rate. 


-PTO includes holidays, vacations, and sickness days.


-You can also pay your employees commissions and draw against their commissions


-Bonus plans that include stock bonuses


-Employer payments 


-Payments to employees outside of time worked


-Hand tools or power tools payments 


-Apartment or housing accommodations 






-Store certificates, merchandise, and credits


-Payments for salary reduction, retirement, or cafeteria plans


-Davis-Bacon wages 


-Annuity plans


-Payment for commercial filming 


-Employee reimbursements 

Which Wages Are Not Covered By Workers' Comp?

On the other hand, some wages are not subject to workers’ comp, including:


-Employee tips 


-Employer payments to group insurance plans or pension plans, and third-party pension trusts 


-Particular rewards 


-Dismissal or severance payments 


-Active military duty payments


-Employee discounts 


-Payments for dinners 


-Work uniform stipends


-Sick pay to an employee 


-Employer-provided advantages


-Employer contributions to salary reduction


A workers’ comp audit may exclude reimbursed expenses and the cost of equipment that protects your employees from injury while on the job (except for hand and power tools) if all three of the following circumstances apply:


-The expense was necessary to operate the business 


-Your bookkeeping system shows and records an employee’s expenses individually


-The expenses you recorded for each employee match the total reimbursement for that employee

Do Workers' Comp Benefits Depend On Gross Wages?

Their gross wages determine employees’ compensation. All earnings, including paid time off and earned wages, are included in gross wages.  

Depending on the state, workers may receive a percentage of pre-tax wages when they receive claims payments. Workers in Washington, for example, receive 60 percent of their gross monthly wages through workers’ comp. Spouses receive 5 percent while dependent children receive 2 percent.

Who Is Covered By Workers' Comp?

Even though workers’ comp laws differ from state to state, most employers are required to provide their employees with workers’ comp insurance. A company’s requirements vary based on its nature, size, and the type of work its employees perform. 

You should be aware that every state defines a covered employee differently. You can visit FindLaw to find out who is covered by workers’ comp in your state. 

Does Workers' Comp Count As A Payroll Expense?

Worker’s compensation insurance is a payroll expense, just another cost of doing business. Your income statement typically includes workers’ comp costs.

Taxable income is usually what remains after expenses. 

Prevention Is The Key To Avoiding Accidents

You can save money by preventing accidents before they happen, improving employee morale, and lowering costs of insurance by preventing injuries before they happen. Be proactive if you don’t yet have a plan. As a leading small business insurer, PEOPayGo is a great option.

As a Professional Employee Organization (PEO), P.E.O.PayGo can help you get workers comp, bundle payroll, and HR, and perform all the headache functions of a small business, all while saving you time and money. Let our Instaquote do all the work, we don’t need much information and it takes 2 minutes. Our software does all the work for you. 

Get Ready, Set, and Covered Now!

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