Reporting payroll on owners

The most common error we see on payroll reports and renewal payroll reports involves the payroll of owners.

Some owners, officers or officials are automatically covered by a policy, while others are covered only when their coverage has been endorsed to a policy. If an owner, officer or official is covered, their payroll must be reported and their name will appear on the payroll report. There are rules regarding how much payroll to report. If you have questions about owner coverage, you should contact your underwriter.

Unless the owner’s name appears on the payroll report, do not include his or her payroll. The sample payroll report here shows where the owner’s name appears. Depending on the type of ownership, the report may use the terms "covered sole proprietor," "covered member of LLC," "covered partner," or "covered owner."

Your report will already have the section completed showing industry classification descriptions assigned for your policy.

Report paid gross payroll in the highest-rated class code that applies to any part of an employee’s duties.

If an employee’s job duties are varied, an employer may be able to reduce workers compensation costs by separating the payroll of an employee and reporting it in more than one job classification on the payroll report. To be eligible for division of payroll — called payroll splitting — two or more classifications must be assignable to the policy. Payroll may not be divided between certain classifications. For more information about restricted classifications, contact your agent or underwriter.

To split payroll, you must keep proper payroll records that show the actual payroll by classification for that individual employee. The Daily Verifiable Time Record on this page shows how the records should be maintained.

If an employer chooses, however, to not split payroll, employees’ wages must be reported under the highest rated classification applied to any part of an employee’s duties.

Overtime is another area where there is often confusion in what payroll is to be excluded. Overtime means those hours worked for which there is an increase in the rate of pay. The extra pay for overtime may be excluded from reported payroll if your records are maintained to show overtime pay separately by employee and in summary by classification. Above is a sample of acceptable records.

When time and half is paid for overtime hours, the one-half is the extra pay and is excluded. For example:

• Regular pay is $10 an hour (straight time).
• Overtime pay is $15 an hour (straight time plus one half).
• Extra pay is $5 an hour (one-half time) and should be excluded on your payroll report.