Workers' Compensation Payroll Exclusions: How to Reduce Your Premiums

What Payroll Can Be Excluded from Workers’ Compensation Calculations?
When it comes to workers’ compensation insurance, accurately calculating payroll is crucial for ensuring fair premium costs. Many business owners are unaware that not all forms of employee compensation need to be included in the calculation. Failing to account for allowable exclusions could mean overpaying for coverage.

At The Granberry Agency, we specialize in helping businesses manage their total cost of risk, including understanding payroll classifications and exclusions. Knowing what can and cannot be included in workers’ comp payroll calculations can help you avoid unnecessary costs and ensure compliance with audit requirements.

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Understanding Payroll Exclusions
Workers’ compensation policies require businesses to report payroll, but certain types of compensation can be excluded from the calculation. These exclusions vary by state and policy, but common payroll exclusions include:
-Certain expense reimbursements (e.g., mileage, per diems, and business-related travel)
-Employer contributions to retirement plans (401k, pension, annuities)
-Some bonuses and incentives (restricted stock bonuses, performance-based stock options)
-Specific travel and uniform allowances Severance or dismissal payments (except accrued vacation or time worked)
-Employee discounts on goods purchased from the employer
-Third-party sick pay (disability income benefits paid by an insurer, not the employer) 
-Employer-provided perks (e.g., company car, incentive vacations, gym memberships)
-Tips and gratuities (if received directly from customers and not paid by the employer)

Over reporting payroll significantly increases your workers' comp premiums. By identifying and properly excluding certain payments, businesses can ensure they are only paying for the risk exposure that truly impacts their workforce.

Real-World Examples of Payroll Exclusions
To illustrate how payroll exclusions work, here are three examples from different industries:
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Contractors:
A construction company reimbursing employees for purchasing personal tools required for work may exclude these payments from reported payroll. Per diem travel allowances for workers traveling to out-of-state job sites may also be excluded if properly documented.

Restaurants & Hospitality:
A fine-dining restaurant that distributes customer tips directly to employees does not need to include these amounts in payroll calculations. Meal money provided to employees working late-night shifts may be excluded when properly classified.

Professional Services (Law Firms, Accounting Firms, etc.):
Employer-paid 401(k) contributions and profit-sharing plans are not considered payroll for workers’ comp calculations. Educational assistance programs covering tuition or certification costs can be excluded if part of a structured benefits package.

Why It’s Important to Review Your Payroll Regularly
Many businesses don’t review their payroll classifications until they receive an audit notice from their workers’ comp carrier. Unfortunately, this reactive approach can result in unexpected costs.

Proactive Steps to Stay Compliant and Save Money:
Regularly review payroll classifications with your insurance advisor Ensure proper record-keeping for expense reimbursements and exclusions Document work uniform allowances, meal money, and travel stipends correctly Conduct quarterly self-audits to catch misclassified payroll early

The Granberry Agency: Your Partner in Workers’ Comp Optimization
At The Granberry Agency, we help businesses optimize their workers’ compensation programs and reduce unnecessary expenses.
Need help with your payroll classifications? Let’s make sure you’re not overpaying for coverage.

Email: [email protected]
Call/Text: 601-755-2468
Website: www.thegranberryagency.com
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