Your gross payrolls are reviewed to determine your premiums for Workers ' Compensation insurance coverage. gross payroll includes total remuneration for services performed, including:
- Wages
- Overtime (straight time portion)
- Bonuses
- Commissions (including 1099 commissions)
- Holiday and Vacation Pay
- Sick Pay (except 3rd party reimbursements
- Incentive Plans
- Piece Work
- Auto Allowances (except expense reimbursements)
- Housing Allowances (for certain class codes)
- Savings Plan (401 K) Employee Contributions
OVERTIME EARNINGS RECORDS
Earnings records for each individual should be organized to include overtime payments, the employee 's job classification and total remuneration. State law allows the premium portion of overtime payment to be excluded from total payroll for determining premiums.
CORPORATE EXECUTIVE OFFICERS, PARTNERS, SOLE PROPERTIES
When included in your policy, the earnings of executive officers, partners, and sole proprietors must be assigned to the specific classifications for the work they perform. State law specifies an earnings minimum and maximum for these salaries when determining premiums.
RECORDS REQUIRED FOR PREMIUM AUDITING
The insurance company representative will look at the following records during the Premium Audit process:
PAYROLL
- Monthly and Quarterly totals
- Work classification totals
- Separate totals for clerical office, outside sales and any type of work performed
- Overtime by work classification classes
INDIVIDUAL EARNINGS
- Type of Work performed
- Date of hire and/or termination
- Gross pay totals, monthly and quarterly
- Overtime totals, monthly and quarterly
CASH DISBURSEMENT AND JOB COST JOURNALS
Monthly totals by account, including:
- Subcontractors
- Casual Labor
- Contract Labor
VERIFICATION AND BALANCING
- Employers Federal Tax Return Form 941 (Quarterly)
- State Unemployment Tax Return (Quarterly)
- General Ledger
- W-2 Statements
- 1099 Statements
- Financial Statements
CONTRACTORS LICENSE AND CERTIFICATES OF INSURANCE
- License from each subcontractor
- Certificate from each subcontractors
SPECIAL NOTE REGARDING SUBCONTRACTORS
If your company hires subcontracting companies which have not purchased Worker 's Compensation insurance for their employees, insurance laws require that your policy must provide coverage for theses employees should they suffer any work-related injury or illness while on your premises or job site. Even more important is the issue of a contractor 's license. State law demands that unlicensed subcontractors must be considered employees of the hiring contractor.
An agreement or written contract with the subcontractor releasing you from such Worker 's Compensation coverage would not be sufficient under the law. Even if the subcontractor may have accident and health insurance policies, you would still be liable for workers ' compensation coverage for the subcontractor 's employees while on your job.
The answer is to obtain a copy of the subcontractor 's license and a certificate of Workers ' Compensation insurance from the subcontractors before any work begins. The insurance company representative will require this proof of insurance and insurance during the audit process. Otherwise, you must include the subcontractor 's payroll along with your payroll to determine your actual premium costs, which could be substantially higher. (SEE ATTACHED "INDEPENDENT CONTRACTOR" DEFINITION)
WAIVER OF SUBROGATION
When your policy includes a waiver endorsement it is necessary for you to maintain payroll records which accurately segregate, by classification, the remuneration of your employees while engaged in the work, described in the schedule.
SOME CONSIDERATIONS
All Commercial Insurance is well versed in the state Workers ' Compensation manual rules. We will be glad to advise you on any points not covered in this brochure.
Remember, accurate record keeping can help you keep your premium costs lower by enabling us to accurately determine your correct premium.
CALIFORNIA WORKERS ' COMPENSATION INSURANCE MANUAL
GENERAL RULES
Underwriting and Auditing Procedure
I. Employment Status. For the sole purpose of premium computation, whether a person is an employee or an independent contractor shall be determined in accordance with relevant Labor Code provisions, common law and Workers Compensation Appeals Board (WCAB) decisions.
A. Generally, the following factors will be considered to determine if the employment status of a person in the service of an employer is that of an employee:
FACTORS FOR DETERMINING IF STATUS OF INDEPENDENT CONTRACTOR APPLIES
- The Right to Control the Manner and Means of Accomplishing the Results Desired. The right to control the manner and means accomplishing the results desired is the most important factor. If the employer has the right to exercise complete control, the relationship is one of employer-employee. The significance of the other factors will vary depending on the extent to which they evidence the right to control the manner and means by which the results desired is accomplished.
- The Right to Terminate the Relationship at Will. The right to terminate the relationship at will, without cause, is strong evidence of the employer-employee relationship.
- Whether the Person Performing the Service Is Engaged in a Distinct Occupation or Business. If the person performing the service is engaged in a separately established business distinct from that of the employer, it evidences that the person is an independent contractor and not an employee. It is evidence that a business is established separately if the person operating the business holds himself out to the general public or a significant portion of the business community in some readily identifiable way, as ready to perform services similar to those performed for the employer.
- Whether the Work Usually Is Done Under the Direction of the Employer or by Specialist without Supervision. Where the work being performed is customarily subject to extensive supervision, an inference is created that the relationship is one of employer-employee.
- The Skill Required in the Particular Occupation. Unskilled labor usually is supervised and therefore if a person is performing services which require little or no skill experience an inference is created that person is an employee.
- Whether the Employer or the Person Performing the Service Supplies Instrumentalities, Tools, and the Place of Work. Where the tools, instrumentalities or facilities used to accomplish the work are not significant in nature, no inference is created as respects the employment status. However, if the tools, instrumentalities and facilities are of substantial value and are provided by the employer, an inference is created that there is an employer-employee relationship.
- Whether the Person Performing the Services has the Right to Hire and Terminate Others. If the person performing the services has the right to hire others to assist in the performance of the services for which he was hired and terminate them, an inference is created that the person is an independent contractor.
- The Length of Time for Which the Person Is to Perform the Services. If the length of time for which the person is to perform the services is short, a weak inference that the relationship is one of employer-independent contractor is created. However, this factor alone will rarely be sufficient to establish the employment status.
- The Method of Payment, Whether by the Time, a Piece Rate or the Job. If payment is made by the job, there is greater inference that the relationship is one of employer-independent contractor than if payment is based on an hourly or piece rate wage.
- Whether the Services Are a Part of the Regular Business of the Employer. If the employer is in business and the services performed are a regular part of the business of the employer, an inference is created that the person performing such services is an employee.
- Whether the Parties Believe They Are Creating the Relationship of Employer-Employee or Employer-Independent Contractor. The employment status that the parties believe they are creating may be evidenced by a contract, either oral or written; however, in order to determine the true employment status, such contract will be construed in view of the circumstances under which it was made and the conduct of the parties while the job is being performed.
B. Application of Factors
- The employment of person 's performing services (other than services for which a contractor 's license is required) shall be determined in accordance with the factors enumerated in (a). As indicated in (a) the right to control the manner and means of accomplishing the results desired is the most important factor in determining the employment status. The significance of the other factors will vary depending upon the circumstances under which the work is being performed. One or more of the factors listed may be of no assistance in determining the employment status if the circumstances underwhich these services are being performed is consistent with either an employer-employee or employer-independent contractor relationship. Therefore, a determination of whether a person is an employee or an independent contractor will depend upon a grouping of factors which are significant in relationship to the services being performed.
- Applications of the general factors enumerated in (a) can result in different conclusions when the circumstances require highly subjective evaluations to be made. Under such circumstances, care must be taken in determining the employment status in accordance with statutory and case law, including decisions of the WCAB, in order to minimize any disparity between the persons whose remuneration is included in the basis of premium and persons for whom the employer is obligated to provide worker 's compensation benefits in the event the person is injured. Of particular significance is California Labor Code Section 5705 which provides, in part, that the burden of proof rests upon the employer to establish that an injured person claiming to be an employee was at the time of injury actually performing services for the employer.
C. Services for Which a Contractor 's License is Required.
Notwithstanding the foregoing, if a person is performing services for which a license is required, pursuant to Chapter 9 of Division 3 of the Business and Professions Code, and the person does not have such license, he is an employee. if such person has a license, there is rebuttable presumption that the person is an employee rather than an independent contractor unless the following can be shown:
- That the worker has the right to control and discretion as to the manner of performance of the contract for services in that results of the work and not the means by which it is the primary factor bargained for.
- That the worker is engaged customarily in an independently established business.
- That the worker 's independent contractor status is bona fide and not a subterfuge to avoid employee status.
IRS REVENUE RULING 87- 41
1) Instructions. When a worker must comply with the instructions regarding, when, where and how to perform work, provided by the compensating entity, then that worker is most likely an employee.
2) Training. If the worker must have training or is required to have training to perform the services in the manner as prescribed by the compensating entity, the that worker is most likely an employee.
3) Integration. If the worker 's services are the kind that are integrated into and a part of the business operation, the worker is most likely under the direction and control of the compensating entity and most likely an employee.
4) Services Rendered Personally. If the worker must personally perform the services, the entity for whom the services are performed is normally interested in the methods and the results of the performance and this shows an exercise of control. The worker is most likely an employee.
5) Hiring, Supervising, and Playing Assistants. Who controls the functions of hiring, supervising and paying assistants, dictates, who has control of the relationship. If the compensating entity performs the functions with regard to the assistants of the worker, then the relationship is most likely an employer/employee relationship. If the worker hires, supervises and pays his or her own assistants, then the relationship is most likely that of an independent contractor.
6) Continuing Relationship. Even if the relationship is irregular , if it is recurring, there is an indication of employer/employee status.
7) Set Hours of Work. If the compensating entity sets and controls the hours of work, the worker is most likely an employee.
8) Full-Time Required. If the compensating entity controls the amount of time the worker spends and in that manner, restricts the worker from other contracts for employment, the worker is most likely an employee.
9) Doing Work on Employer 's Premises. If the compensating entity exercises control over such factors as the place of work, the designated route traveled, or the territory canvassed, then the worker is most likely an employee.
10) Order or Sequence Set. If the compensating entity controls, sets, or has the right to establish the schedules and routines to be followed, then the worker is most likely an employee.
11) Oral or Written Reports. If the compensating entity controls, sets, or has the right to establish the schedules and routines to be followed, then that worker is most likely an employee.
12) Payment by the Hour, Week, or Month. Payments that are made to the worker by commission or by the job, most likely indicate an independent contractor relationship. Payments made to the worker by the hour, week, or month, most often indicate an employee relationship
13) Payment of Business and travel Expenses. If the compensating entity controls the type and payment of business and travel expenses or otherwise regulates these activities, then the relationship is most likely employer/employee
14) Furnishing Tools and Materials. If the compensating entity provides tools and materials then the worker is most likely an employee. If, however, the worker provides tools and materials, this lends itself to an independent contractor.
15) Significant Investment. If the worker has invested sums into facilities to perform services and these facilities are not normally those provided by an employee, such as an office or building, then the worker is most likely an independent contractor. Caution must be used, however, for those offices within the home and the extent and furnishing of such.
16) Realization of Profit or Loss. If the worker suffers or is subject to the risk of real economic loss from investments, expenses salaries of assistants or hires, then the worker is most likely an independent contractor.
17) Working for More Than One Firm at a Time. If the worker has control over own circumstances and can and does work for more than one entity at a time, this most likely indicates an independent contractor.
18) Making Service Available to the General Public. Ability to do so normally indicates an independent contractor.
19) Right to Discharge. Independent contractors have contractual agreements that guarantee compensation for the duration of the contract as long as terms and conditions are met. If the compensating entity has the right or ability to discharge, then this normally indicates an employer/employee relationship.
20) Right to Terminate. In an independent contractor relationship, the worker cannot terminate at will, but must comply with the terms of the contractual agreement. An employee, however, can terminate at will.
