Preparation & Review
Payroll is used to determine how much you pay for work comp coverage, but many employers don't know what should and should not be counted toward payroll. Certain benefits and wages that should be excluded from payroll are referred to as "excluded remuneration, and it's a persistent problem. Employers include excluded remuneration as payroll by mistake, and these exclusions often get overlooked by the auditor. Use the checklist below when preparing for your next payroll audit. If you check off any of the items, remove them from your payroll calculations.
- Overtime Wages
- Tips or Gratuity
- Payments by the employer to group insurance or group pension plans for employees (see Rule 2 for exceptions)
- Payment by the employer into a third-party trust (see Rule 2 for restrictions)
- The value of rewards for individual invention or discovery
- Severance payments, except for time worked or accrued vacation
- Payments for active military duty
- Employee discounts
- Expense reimbursements
- Reimburse expenses and flat expense allowances (see Rule 2 for exceptions)
- Supper money for afterhours work
- Uniform allowances
- Sick pay from supplemental insurance
- Employer perks:
- Use of company vehicles
- Airplane tickets
- Incentive vacations
- Club memberships
- Tickets for entertainment events
- Employer contributions to employee benefit plan:
- Employee savings plans
- Retirement plans
- Cafeteria or Flex plans
View the rule governing Excluded Remuneration, also known as Rule 2, for exceptions and restrictions.
Employee Class Codes
The basic building blocks that determine how much you pay for work comp coverage starts with the division of labor into the appropriate class codes. Set by the state, class codes are specific categories that payroll will be assigned to, based on the type of work the employee does. The lower the risk, the lower the work comp rate for that code. Code 8810 is easy to understand. Code 8810 is for clerical employees who rarely leave the office environment. The work comp rate is extremely low for 8810 because the frequency and severity of work comp claims for this employee class is very low. A typical rate for 8810 would be $0.20 per $100 in payroll. Contrast clerical against code 5645 for residential carpentry. The average rate for 5645 is $16 per $100 in payroll, as the frequency and severity of claims for this employee class are much higher. With the large disparity in rates per class code, it is crucial to make sure class codes are correct, or you will be overcharged at audit.
Minnesota is an open rating state, meaning that payroll can be put into any agreed upon class code, not necessarily the correct one. To avoid any confusion or miscommunication with the auditor, check to make sure your payroll is divided into the appropriate codes. The Scopes manual, developed by the national rating bureau, the National Council on Compensation Insurance (NNCI), is one useful tool you can use, as it details what is included - and not included - for each class code. If you are unsure, or dont have access to the manual, contact the states rating bureau, the Minnesota Workers Compensation Insurers Association (MWCIA) for assistance.
Minnesota state statute also allows for the division of payroll into 4 hour blocks for the same employee, but only if they actually split their time between the office and the field, and the employer is able to keep accurate payroll records to support it. The risk is lower for part of the day, lowering the payroll rate as well.