Year-end bonuses impact Workers' Comp premiums

Year-end bonuses have become an increasing popular tool to assist in retaining skilled employees and employers are extending bonuses to a wide segment of their workforce. Do year-end bonuses affect Workers' Comp premiums? The simple answer is yes, with some exceptions.

The basis for premium in most states is remuneration, which is much more than payroll. When giving year-end bonuses, it's important to understand what is included and excluded for Workers' Comp remuneration. While the specific rules for inclusions and exclusions vary among states, in general, year-end bonuses, stock bonus plans, and cash or cash equivalents such as gift cards are included in remuneration for Workers' Compensation purposes.

Some state exceptions are: Tennessee that includes bonuses only when paid in lieu of wages and specified as a part of a wage contract; Oregon that excludes bonus pay if it is not anticipated under the contract of employment and is paid at the sole discretion of the employer; New Mexico that excludes bonuses paid under a state approved safety program; and Texas that excludes safety awards paid in accordance with a written safety plan. On the other hand, certain gifts or perks for employees are not included in remuneration. These include employer-provided tickets to entertainment events, an airline flight, employer-provided automobiles, and club memberships. Also bonuses that are a special award for individual invention or discovery are typically not included.

Year-end bonuses do much to cultivate employee loyalty, build morale and stimulate productivity. Employers should simply be mindful of the additional costs that an otherwise gratuitous payment can have, including Workers' Comp premiums.