In all but two (2) States, Texas and New Jersey, Workers Compensation is compulsory.

2. Are there any exemptions?

Yes, the only exception is that coverage is voluntary for employers with one, two or three employees in a non-construction business. In a construction business if you have one or more employees you are required to carry Work Comp. There are, however, special rules that apply to partners, sole proprietors, and corporate officers.

3. What are the special rules for partners, sole proprietors, and corporate offices?

Coverage is elective for partners and sole proprietors. Corporate officers may reject coverage under the policy if they wish. A signed form is necessary to elect or reject coverage.

4. Why do I get audited?

Audits are routinely conducted to verify the operations of the insured and to update policy information such as changes in operations, business locations, and new ownership. Audits are conducted to determine correct premium, and to confirm information used for calculating rates. Premium, experience modification, and classification rates are affected by the results of an audit.

5. What if I have questions regarding my workers’ compensation classifications?

The audit is an excellent opportunity to review and confirm proper classifications for the policy. The auditor will speak with the person who is best able to answer questions regarding your operations.

6. What records will I be asked to provide for the audit?

In general, you will be asked to provide State Quarterly Wage and Withholding Reports such as UCT-6 forms, 941 reports, payroll journals for the period being audited.

Since the information needed for each audit may differ, you may also be asked to provide other records that relate to your workers’ compensation policy. Examples include: payroll registers, time books, time cards, individual earnings records, check registers, check stubs, check books, cash disbursement journal, cash book, petty cash book, general or subsidiary ledgers, job cost records, confidential records, bonus ledgers, commission ledgers, profit sharing reports, 941s, W-2s, W-3s, 1096s, 1099s-Misc., 540, 1040 Schedule C, certified payroll, prevailing wage determination sheets, etc.

7. What type of wages and benefits are subject to premium?

Subject to Premium:

Premium calculations are based on gross payroll, not net payroll. Gross wages include salaries, commissions, bonuses, vacation, holiday pay, sick pay, overtime base wages, the market value of gifts, all substitutes for money earned or paid during the policy period including meals and lodging in lieu of wages, automobile allowances, and some pension play payments explained below.

Not Subject to Premium:

Payroll for officers specifically excluded from coverage under the policy, overtime excess (explained later), tips, severance pay, the value of an automobile furnished to an employee, reimbursement for expenses with receipts, and salary reductions to fund the welfare or fringe benefit portion of a Section 125 cafeteria plan.

Retirement/Pension Plans-Subject to Premium:

Any amount by which an employee’s salary is reduced to fund a pension or deferred compensation plan.

Retirement/Pension Plans-Not Subject to Premium:

Employer contributory payments including group insurance, stock purchase plans and qualified retirement plans. The exercise of stock options and withdrawals from deferred compensation plans are also not subject to premium computation.

What if I pay my employees in cash?

If you pay your employees in cash instead of by payroll checks, you must keep a log of the cash payments, the hours worked, the date paid, the amount paid, and the first and last name of the employee. Otherwise, all cash withdrawals on your check register will be included in computing workers’ compensation premium.