One of our clients recently asked if he had to pay work comp on a bonus to his employee. The simple answer is yes because any compensation to the employee counts as payroll. This can include meals, lodging or any other type of compensation.
This is pretty straightforward unless the employee is in a class code that can be split to "wages above" and "wages below". If the employee is already in the "wages above" classification there is no change - it simply counts as payroll. If he is in the wages below classification then a bonus could bump the employee into the higher classification and that would result in a lower work comp premium.
The purpose of the bonus can also have an effect. If it is simply and annual bonus then it would be applied over the whole year but what if the bonus were tied to a specific project? In this case it could bump the employee into the "wages above" classification for that project. If this is your intention and an employee gets moved into a "wages above" by a bonus be sure to document in detail. At the year end audit the person doing the audit could have a different idea and try to average the bonus. If you document what you are doing you can argue the point at the audit.
If you intend to give a bonus to an employee it is important to understand the above concept and do the math to see how the premium would be affected. If you are giving the employee a $5,000 bonus but you are only $200 away from moving him to a "wages above" class code then you may save money overall by paying $5,200 instead of just $5,000. Keep in mind that you will also pay taxes on the higher payroll. There are a lot of possible scenarios that could be thought up. If you understand the basic concept you can do the math to come up with the most advantageous solution.
Here is the wording of the applicable rules:
"1. Payroll – Remuneration
As used in this Plan, payroll and remuneration are synonymous and mean the monetary value at which service is recompensed. Except as provided herein, remuneration includes: gross wages, salaries, commissions, bonuses, vacation, holiday and sick pay, overtime payments, the market value of gifts, and all substitutes for money earned during the policy period by employees and officers of the employer, and any other persons for whom voluntary coverage is provided under the policy.
4. Standard Exceptions
Employees engaged in the clerical office or outside sales functions described below are referred to as Standard Exception Employees. If a standard classification specifically includes Clerical Office Employees or Outside Salespersons, such employees shall be assigned to the standard classification, regardless of California Workers’ Compensation Uniform Statistical Reporting Plan—1995 Effective January 1, 2018 Part 3 – Standard Classification System whether the work is conducted at the same or at a separate location. It is not permissible to divide a single employee’s payroll, within a single policy period, between a Standard Exception classification and any
other classification with the exception of a single permanent job reassignment. Otherwise, the remuneration of Standard Exception Employees is subject to division of payroll in connection with all other classifications in accordance with the following:
a. Classification 8810, Clerical Office Employees Clerical Office Employees are defined as those employees whose duties are confined to keeping the books, records or cash of the employer; conducting correspondence; using computers; dispatching; recording weights; or who are engaged wholly in general office work or office drafting, having no regular duty of a non-clerical nature in the service of the employer. Except as otherwise provided in this Rule, the entire payroll of any employee who is engaged in operations performed by Clerical Office Employees and also is exposed (1) to any operative hazard of the business or (2) to any outside selling or collecting work, shall be assigned to the highest rated classification of work to which the employee is so exposed. Supervisors and clerks, such as time, stock or tally clerks, whose work is necessary, in connection with or related to any operations of the business other than clerical office operations shall not be classified as Clerical Office Employees. Classification 8810, Clerical Office Employees, shall be applied only to the payroll of persons herein described who work exclusively in areas that are separated from all other work places of the employer by buildings, floors, partitions, railings or counters and within which no work is performed other than clerical office or drafting duties
as defined in this Rule."
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