Workers’ Compensation costs can significantly impact a corporation’s bottom line. To manage these expenses effectively, it’s important to know how wages are defined for compensation purposes. Including non-compensable elements in workers’ compensation calculations can inflate costs unnecessarily, whereas excluding legitimate components may lead to unbudgeted additional insurance premiums. To help avoid either one of these scenarios, it is best to know what is usually included and excluded from workers’ compensation wages.

What’s typically included:

  • Wages or salaries, including:
    • Regular wages
    • Overtime wages (1/3 is excluded)
    • Double time wages (1/2 is excluded)
  • Bonuses and Commission
  • Vacation and sick pay
  • Non-monetary benefits such as housing or meals
  • Executive Officers, Partners, Sole Proprietors, and Members of a Limited Liability Company can elect to be included or excluded from workers’ compensation coverage. If they are included, they will be subject to their state’s minimum and maximum limitations.

What’s typically excluded:

  • Tips and gratuities
  • Severance payments
  • Work uniforms
  • Sick pay paid to an employee by a third party such as an employer’s group insurance carrier that is paying disability income benefits to a disabled employee
  • Employer provided perks
  • Employer Contributions to employee benefit plans (401k, HSA, etc.)

Employers who understand what is included and excluded from workers’ compensation wages can better assess their financial obligations. While these general guidelines offer a framework, consult with legal professionals and your Marsh McLennan Agency (MMA) team who are familiar with the specific laws and regulations in your jurisdiction.

Learn more about workers’ compensation wages and how to protect your business here.

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