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Payroll: Group Insurance

Generally, payments by an employer to group insurance or pension plans are excluded.;

Rule 2.B.2.b. of Basic Manual

"Payments by employer"
An additional clarification related to this issue is that "payments by an employer" to group insurance or group pension plans for employees, other than those covered by Rule 2.B.1.f and Rule 2.B.1.m. These "group" plans are distinctly different from "individual" plans for two main reasons: (1) the payments are of "employer" monies and usually have stringent vesting requirements, such as five-year employment, and (2) the employer payments are in no way considered as part of the employee wages.

Note: Notwithstanding any determination by an agency of the United States government that a portion of these employer payments is considered income to an employee, the entire payment made by an employer using employer funds is excluded from remuneration for Workers Compensation premium purposes.

So, the payments to a group health insurance plan need to be paid directly from the employer to the carrier in order to be excluded. These payments should not be considered as part of the employee's payroll regardless of the employer's legal status.

"Payments by employee"
If payments are being paid directly to the employee and then, in turn, the employee directly purchases the health insurance, such payments are to be included as remuneration.

Once the employee has control of the funds, has them in hand so to speak, the funds are remuneration for WC purposes. If an employer sets aside funds which the employee cannot put in his/her pocket, these funds are not remuneration for WC purposes. If an employee has control of funds to the extent that the employee can decide what percentage shall go into his pocket and what percent shall be contributed to a plan, the entire amount (pocket + contribution) is remuneration for WC purposes.

As an example, if an employee's hourly salary of $12.00 includes an amount of $2.00 identified as a "fringe benefits equivalency payment," it must be considered remuneration for WC premium purposes. The $2.00 is being paid directly to the employee for services performed. While it may be referred to as a "health benefit," it is in reality a component of the employee's hourly wages. The employer is not making the payment to a group insurance plan as required for exclusion from remuneration under the Basic Manual rules.

Example
An insured contests an auditors decision that the inclusion of $10,00 in payroll which represents an amount paid to a group health insurance plan for two owner/employees. The insured was advised by its CPA that the IRS deems the payment of group health insurance to be a taxable event for any person owning 2% or more of an Indiana "S" Corporation. The auditor tells the insured, "Any excludable payments would not show up on a quarterly 941 form on line 2 (Total wages and tips, plus other compensation.)"

The dollars in question represent amounts paid directly to the health care provider. Therefore, the $10,000 is not considered remuneration for workers compensation premium purposes.

Related Rules
401k savings plans and IRS Section 125 cafeteria plans are also addressed in Basic Manual Rule 2.B. In general, the employee contribution is included, but the employer contribution is excluded. Read the rule for details.


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.