Payroll: Inclusions & Exclusions

Review of Basic Manual Rules BM‐PAYI‐PF00A and BM‐PAYE‐P02F2 . regarding what items are included and excluded to determine payroll for workers compensation insurance.

Refer to the Basic Manual Rules Payroll ​inclusions and exclusions for lists of items. 
Remuneration need not be in the form of money in order to be considered as payroll.  Workers Compensation payroll exclusions and inclusions are listed below from the Basic Manual:

B. Payroll

(Additional Rules: AZ, NM, OR) (Exceptions: FL)

For purposes of this manual, the terms “payroll” and “remuneration” mean money or substitutes for money.

1. Includes:

(Additional Rules: ME, MT, NV, TX) (Exceptions: AK, AR, AZ, CO, FL, IL, IN, KS, KY, MD, MS, MT, NM, NV, OK, OR, SD, TN, TX, UT, VA)

  1. Wages or salaries (including retroactive wages or salaries). Refer to NCCI’s User’s Guide for examples.
  2. Total pay received by an employee for commissions and draws against commissions.
  3. Bonuses including stock bonus plans. Refer to the Basic Manual for payroll limitation rules.
  4. Extra pay for overtime work except as provided in BM‐OVEE‐R97F4.
  5. Pay for holidays, vacations, or periods of sickness. Refer to BM‐INTL‐R71D3 for allocation of payroll for employees subject to more than one classification code.
  6. Payment by an employer of amounts that would have been withheld from employees to meet statutory obligations for insurance or pension plans such as the Federal Social Security Act or Medicare.
  7. Payment to employees on any basis other than time worked, such as piecework, profit sharing or incentive plans.
  8. (RESERVED FOR FUTURE USE.)
  9. The rental value of an apartment or house provided to an employee based on comparable accommodations.
  10. The value of lodging, other than an apartment or house received by an employee as part of their pay to the extent shown in the employer’s records.
  11. The value of meals received by employees as part of their pay to the extent shown in the employer’s records.
  12. The value of store certificates, merchandise, credits or any other substitute for money received by employees as part of their pay.
  13. Payments for salary reduction, employee savings plans, retirement or cafeteria plans (IRC 125), health savings accounts, and flexible spending accounts that are made through employee-authorized salary reductions from the employee’s gross pay. Refer to NCCI’s User’s Guide for an example.
  14. Davis-Bacon wages or wages from a similar prevailing wage law. Refer to NCCI’s User’s Guide for an example.
  15. Annuity plans.
  16. Expense reimbursements to employees if the employer’s records do not confirm that the expense was incurred as a valid business expense. Refer to Rule BM‐PAYE‐RB65F for contractual allowable travel expenses. Exception: When it can be verified that the employee was away from home overnight on the business of the employer, but the employer did not maintain verifiable receipts for incurred expenses, a reasonable expense allowance is permitted to be excluded. The allowance is limited to a maximum of $75 per day. The remaining non-verifiable expenses are included as payroll.Refer to Rule BM‐PAYE‐RB65F for additional information about exclusion of expense reimbursements.
  17. Payment for filming of commercials excluding subsequent residuals that are earned by the commercial’s participant(s) each time the commercial appears in any type of media.
  18. Adjustments made by the employer to raise employees’ wages to federal, state, or local minimum wage, whichever is applicable.

2. Excludes:

(Additional Rules: AR, FL, IL, IN, KS, KY, LA, MD, ME, NM, OK, OR, SD, TN, UT) (Exceptions: AK, CO, CT, KS, MT, NM, NV, OR, VA) (User’s Guide: FL, KY)

  1. Tips or other gratuities received by employees.
  2. Payments by an employer to group insurance or group pension plans for employees, other than those covered by Rule BM‐PAYI‐PF00A and BM‐PAYE‐P02F2.
  3. Payments by an employer into third-party trusts for the Davis-Bacon Act or a similar prevailing wage law provided the pension trust is qualified under IRC Sections 401(a) and 501(a).
  4. The value of special rewards for individual invention or discovery.
  5.  Dismissal or severance payments except for time worked or vacation accrued.
  6. Payments for active military duty.
  7. Employee discounts on goods purchased from the employee’s employer.
  8. Expense reimbursements to employees if the employer’s records confirm that the expense was incurred as a valid business expense.

    Reimbursed expenses and flat expense allowances paid to employees may be excluded from the audit only if all three of the following conditions are met: 
    1. The expenses or allowances are incurred for the business of the employer
    2. The amount of each employee’s expense or allowance is shown separately in the records of the employer
    3. The amount of the expense or allowance approximates the actual expense incurred by the employee in the conduct of their work Refer to NCCI’s User’s Guide for an example.

      Note: If an employer did not maintain verifiable receipts for incurred expenses for an employee that was away from home overnight on the business of an employer a maximum expense allowance is permitted to be excluded. Refer to Rule BM‐PAYI‐RC30B Exception for the maximum employee expense allowance.

      Allowable travel expenses permitted by any contract with a federal, state, or local government entity, including, but not limited to, a city, borough, or village, are excluded from payroll. In lieu of verifiable receipts for incurred expenses, the employer must produce a copy of the contract provision permitting the travel expenses at audit. The allowable travel expenses must be in addition to the current wage of the employee
  9. Meal money for late work.
  10. Work uniform allowances.
  11. 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.
  12. Employer-provided perks such as:
    1. Use of company-provided automobiles
    2. Airplane flights
    3. Incentive vacations (e.g., contest winners)
    4. Discounts on property or services
    5. Club memberships
    6. Tickets to entertainment events
    7. Educational assistance
    8. Relocation and moving expensesm.   
    9. Employer contributions to employee benefit plans such as:
      1. Employee savings plans
      2.  Retirement plans
      3. Cafeteria plans (IRC 125)
      4. Health savings accounts
      5. Flexible spending accounts

These include contributions made by the employer, at the employer’s expense, which are determined by the amount contributed by the employee.​