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Home : Essentials of Payroll : Workers Compensation Benefits
Workers Compensation BenefitsWorkers' Compensation BenefitsBusinesses are required by law to obtain workers' compensation insurance, which provides their employees with wage compensation if they are injured on the job. This insurance may be provided by a state-sponsored fund or by a private insurance entity. The key issue from the payroll perspective is in calculating the cost of the workers' compensation insurance. This calculation occurs once a year, when the insurer sends a form to the company asking it to list the general category of work performed by the various groups of employees (such as clerical, sales, or manufacturing), as well as the amount of payroll attributable to each category. It behooves the person filling out the form to shift as many employees as possible out of high-risk manufacturing positions, since the insurance cost of these positions is much higher than for clerical positions. It's also important to reduce the amount of payroll attributable to each group by any expense reimbursements or nonwage benefits that may be listed as wages, as well as the overtime premium on hours worked. By reducing the total amount of reported payroll expense, the total cost of the workers' compensation insurance will also be reduced. Example. The payroll manager of the Humble Pie Company was responsible for managing the cost of workers' compensation. In the previous year, she was aware that the 58 manufacturing positions reported to the insurance company were subject to a four-times multiplier for insurance pricing purposes, because they worked in risky jobs, while the clerical staff only had a one-times multiplier. Thus, by legitimately shifting employees from the manufacturing category to the clerical category, she could reduce the cost of workers' compensation insurance for those positions by 75 percent. In reviewing the payroll records, she found that three production supervisors and one security guard were classified as manufacturing positions. She shifted the classification of these positions to clerical ones. In
the Real World: Reclassify Employees to Reduce Insurance Costs
A telemarketing firm had been classifying its employees largely as sales personnel on its workers' compensation application, because they were primarily engaged in "push" sales calls over the phone. However, the firm found that this classification resulted in a one-third increase in the cost of its worker's compensation insurance, because the assumption by the Insurance company was that people in this position traveled constantly and so were more likely to be injured in traffic accidents while on company business. After discussions with the insurer, the telemarketing firm reclassified its entire sales staff as clerical positions, thereby dropping the cost of its workers' compensation insurance by one-third. 173
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