Skip Ribbon Commands
Skip to main content
Home


Dividends

A dividend is a distribution of surplus or profit to a stockholder of a corporation and not normally considered remuneration.;

A dividend is a distribution of surplus or profit to a stockholder of a corporation. The amount is declared by a board of directors and is usually dependent on the type of stock owned. As this money is paid based on ownership of a business, not for services rendered it is not remuneration for WC purposes.

The Basic Manual Rule 2 makes no reference to dividends either as inclusions or exclusions to remuneration. However, the following logic seems to support that dividends are not remuneration. First, a dividend received by a stockholder is not based on services performed for the corporation, but rather on the number of shares owned. Also, as indicated in Basic Manual Rule 2.A. "Premium is calculated on the basis of the total payroll paid or payable by the insured for services of individuals who could receive workers compensation benefits for work-related injuries as provided by the policy." So, remuneration is a function of services, whereas dividends are a function of ownership, thus not considered remuneration. Also, in July, 1980, the NCCI Underwriting Committee decided that Subchapter "S" corporation dividends are not remuneration.

Distribution of Accumulated Profits
We have also been asked about the inclusion/exclusion of "undistributed profits" or "distribution of accumulated profits." The key question is: are these profits distributed as a dividend or bonus? If these profits are treated as a dividend, then they are not considered remuneration. If these profits are treated as a bonus, then they are considered remuneration.
 
Phantom Stock
Investopedia.com defines "phantom" stock as an employee benefit plan that gives selected employees (senior management) many of the benefits of stock ownership without actually giving them any company stock. Sometimes referred to as "shadow stock." Rather than getting physical stock, the employee receives "pretend" stock. Even though it's not real, the phantom stock follows the price movement of the company's actual stock, paying out any resulting profits.
 
“Phantom” stock plan appears to fall under the category of “stock bonus plans” which Basic Manual Rule 2.B.1.c., page R12, indicates is included as remuneration. In general, remuneration is a function of services, whereas dividends are a function of ownership, and thus not considered remuneration.
 
In the case of "phantom" stock, no ownership (no risk) is contemplated. So, arguing that “phantom” stock is a dividend and not remuneration is difficult.
 
Such a plan appears to be a variation of a standard bonus plan but with a twist - that being the amount of the bonus is based on the current value of stock.
 

Related Files

The material in this document has been prepared and shared for informational purposes only and should not be relied upon as legal advice on any particular situation.