My Strangest Workers Comp Wages Incident – Pricing Chickens
Being able to write a story that covers workers comp premium audit and claims adjusting has the making of a rare event. Workers comp premium auditors call it remuneration while a workers comp adjuster calls the term wages.
Workers Comp Wages
In the early 1990s, I came across a claim in a peer review where one of the strangest questions was asked by an adjuster. Is livestock considered workers comp wages and how do I price them?
The carrier and insured will remain nameless for privacy reasons.
An injured worker was injured in a compensable incident while working on a farm. The employer decided to add chickens that were raised by the worker. Part of the worker’s pay was a percentage of the chickens that were raised on the farm.
The insured never valued the chickens previously. This is where the conundrum started – if the chickens were not counted as taxable wages, then why include them on a workers comp wage statement?
The easy way was to value the chickens at the price that the farm sold them to chicken processors later. That number would not work because the injured farm worker kept them as breeding stock and did not sell them. (complication).
Pricing Rhode Island Reds
In the 1990s, one could not Google the price of Rhode Island Reds as in this link. The price looks to be $15 per chicken out of easter North Carolina. We needed to price these by calling the farms in the area and asking how much the chickens were worth. The claim’s jurisdiction was North Carolina.
The average in 1993 was $7.60 per Rhode Island Red. The worker had his own farm, so he would receive 50 per year. The problem was that some of these were show-level chickens. Ten were show-level and 40 were normal Rhode Island Reds.
Another round of calls valued these at $28 each.
The part of the workers comp wages used for benefits was figured on the usual formula:
(($7.60 * 40)) + (10 * $28) = $584 added to his total wages. The file went to a hearing later for Permanent Partial Disability. – a viewing. The value of the chickens was doubled at that time, so the final price of the chickens for the file was $1,168.
Finishing the indemnity benefit formula $1.168/52 = $22,46 /.6667 = $14.98 per week in indemnity benefits.
Those are non-taxable benefits.
Workers Comp Remuneration
Workers Comp Remuneration is the term used by premium auditors. The list of remuneration included for the above claim would be (From the North Carolina Basic Manual)
For purposes of this manual, the terms “payroll” and “remuneration” mean money or substitutes for money.
a. Salary or wages (including retroactive salary or wages).
b. Total pay received by an employee for commissions and draws against commissions.
c. Bonuses and stock bonus plans. See Rule 2-D.
d. Extra pay for overtime work except as provided in Rule 2-C-2.
e. Pay for holidays, sick leave, or vacations. See Rule 2-G-3 for allocation of payroll for employees subject to more than one classification code.
f. Employer payments withheld from employees to meet statutory obligations for insurance and/or pension plans, such as the Federal Social Security Act or Medicare.
g. Payment to employees on any basis other than time worked, such as piecework, profit sharing, or incentive plans.
h. (RESERVED FOR FUTURE USE)
i. The rental value of a house or apartment provided to an employee based on comparable accommodations.
j. The value of lodging, other than an apartment or house, received by an employee as part of their pay as shown in the insured’s records.
k. The value of meals received by employees as part of their pay as shown in the insured’s records.
l. The value of store certificates, credits, merchandise, or any other substitute for money received by employees as part of their pay.
m. Payment for retirement or cafeteria plans (Internal Revenue Code 125), health savings accounts, flexible spending accounts, employee savings plans, or salary reduction that is made through employee-authorized salary reductions from the employee’s gross pay.
n. Davis-Bacon Act wages (A federal law that establishes the requirement for paying the local prevailing wages on public works projects) or wages from similar prevailing wage laws.
o. Annuity plans.
p. 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 2-B-2-h for contractual allowable travel expenses.
When it can be verified that the employee was away from home overnight on business for the employer, but no verifiable receipts for incurred expenses have been retained, a reasonable expense allowance, also known as a per diem, 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.
q. Payment for filming commercials for the insured, excluding subsequent residuals that are earned by the commercial’s participant(s) each time the commercial appears in any type of media.
a. Tips or other gratuities received by employees.
b. Group insurance or group pension payments made by an employer for employees, other than those covered by Rule 2-B-1-f and Rule 2-B-1-m.
c. Payments by an employer into third-party trusts for the Davis-Bacon Act or similar prevailing wage laws, provided the pension trust is qualified under the Internal Revenue Code, Sections 401(a) and 501(a).
d. The value of special rewards for individual invention or discovery.
e. Payments for dismissal or severance except for time worked or vacation accrued.
f. Payments for active military duty.
g. Employee discounts on goods purchased from the employee’s employer.
h. Expense reimbursements to employees if the employer’s records confirm that the expense was incurred as a valid business expense.
Flat expense allowances and reimbursed expenses paid to employees may be excluded from the audit 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.
The above section l. covers the Rhode Island Reds as workers comp wages (remuneration).
The value of store certificates, credits, merchandise, or any other substitute for money received by employees as part of their pay.
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As always, James, great stuff. In CA payments made to employee away at reserve, or active military service is still used to develop premium (WTG CA – not!) And of course I get it, jurisdiction to jurisdiction can have differences, but one item seems to remain, which I could never really explain to insureds. Why is Vacation and Sick time typically used to develop premium?
CA Risk Mgr, thanks for your great comment and your compliment. During tax season, I tend to run a little behind on responses to comments. I usually send a copy of the manual where it enumerates and explains all the parts of payroll that are considered remuneration.
I have had the question that you asked posed to me a few times a year – why are vacation and sick time used to develop premium when the person is not actually working – hence the risk of an on-the-job injury is non-existent. I may ask that question at the upcoming NCCI conference in Orlando.
One emailed question I received is the Rhode Osland Red rooster in the pic is worth much more than the chickens. Why did I not mention that fact?
Please feel free to comment at any time on any article. Thanks again.