When it comes to workers’ compensation, it can be difficult to know and understand exactly what wages are subject to coverage. Workers’ compensation is an insurance program that provides coverage for employees who have been injured on the job. The coverage includes medical expenses, lost wages, and death benefits for family members in the event of a fatal injury.
It is vital employers understand which wages should be included in workers’ compensation as it helps provide financial protection to employees who have been injured or affected by their workplace environment. Our professionals at Vested HR will cover which wages you should include in your calculation when handling a workers’ compensation case.
Who Is Subject to Workers’ Compensation?
The laws for worker’s compensation vary by state, however, employers must include all covered employees in their workers’ compensation policies. This typically includes any full-time, part-time, and temporary workers who are employed by your business for at least 20 hours or more per week. You should always look into the laws of your state to determine what steps you will need to take.
Is Workers’ Compensation Based on Gross Wages?
In most cases, workers’ compensation is based on gross wages and not take-home pay. This means that any deductions due to taxes, benefits, or other items are not included in the calculation of total wages paid.
Requirements will vary by state laws as well as the size of your business and the type of services your employees typically provide.
Is Workers’ Compensation a Payroll Expense?
Yes, workers’ compensation is a payroll expense. All wages paid to the affected employee should be included in the calculation when determining how much you are responsible for in workers’ compensation payments.
Any workers’ comp costs should appear on your income statement just as any other cost of running your enterprise.
Which Wages Are Subject to Worker’s Compensation?
The following wages are typically subject to workers’ compensation:
- Regular Wages and Salaries: this includes any retroactive pay
- Paid Time Off: including holidays, vacation, and sick time
- Bonuses: this includes stock bonus programs and end-of-the-year bonuses
- Lodging or Apartment Housing Accommodations: anything your employees are provided as part of their compensation
- Phone, Hand or Power Tools Compensation: if employees use their own tools or phones during work
- Store Credits, Merchandise, Meals, or Store Gift Certificates: included when employees are given any of these “perks” as part of their compensation for employment
Which Wages Are Not Subject to Workers’ Compensation?
The following wages are typically not subject to workers’ compensation:
- Tips and Gratuities: these are paid directly by customers, and cannot be included in workers’ comp calculations.
- Employer Contributions to Retirement Programs: this includes 401(k) and other retirement plans.
- Employee Discounts: these would involve any discounts on goods purchased from the employer
- Third-Party Sick Pay: if the sick pay provided is through an insurance provider who is paying disability insurance
- Work Uniform Stipends: stipends are not part of the employee’s salary and are rather a way to “support” the employee
- Complementary Meals: Meals provided for working overtime or during late hours
- Third-Party Pension Trusts: this also includes payments made by an employer to group insurance or pension plans
- Dismissal and Severance Pay: this excludes worked time or vacation time
Don’t Worry, You’ve Got This (and We’ve Got Your Back)!
At Vested HR, we understand that workers’ compensation can be complicated and confusing. Especially with the differences in state policies and types of businesses. Our experienced HR experts are here to make sure you have all the information you need when figuring out which wages should be included in any workers’ comp case.
We are always happy to answer any questions that arise regarding payroll, employee benefits, and more. Feel free to reach out or request an evaluation with us for any of your PEO service needs!