Question:
What are the potential issues for having an Injury Wages payroll item for wages paid to employees for time missed for work-related injuries? Our WC policy only pays lost wages after a certain number of days are lost. Our company practice has been to pay up to 8 hours per day for work missed due to work-related injury when the days lost do not meet the WC policy threshold. Is there a risk in paying this wage under a specific payroll item assigned to just this type of pay?
Answer:
While offering “Injury Wages” can provide immediate financial relief to employees awaiting workers’ compensation benefits, it’s essential to assess the potential impacts on your company’s payroll processes, compliance obligations, and financial liabilities. Consulting with your workers’ compensation insurance provider, a tax advisor, and legal counsel can help ensure that this practice aligns with regulatory requirements and supports both your employees and your organization effectively.
Here are a few things to consider:
Workers’ Compensation Premium Calculations: Typically, wages paid to employees are included in the payroll amounts used to calculate your workers’ compensation premiums. By introducing a separate payroll item for “Injury Wages,” you might inadvertently increase your reported payroll, potentially leading to higher premiums. It’s crucial to verify with your workers’ compensation insurance provider how these payments are classified and whether they impact your premium calculations.
Tax Implications: Payments made under “Injury Wages” may be subject to standard payroll taxes, unlike workers’ compensation benefits, which are generally non-taxable. This distinction could affect your company’s payroll tax liabilities and the employee’s taxable income. Consult with a tax professional to understand the implications fully.
Employee Perception and Fairness: While compensating employees for missed work due to injury demonstrates goodwill, it’s important to maintain consistency and transparency in how these payments are administered. Inconsistent application can lead to perceptions of unfairness among staff.
Documentation and Record-Keeping: Maintain thorough documentation of any “Injury Wages” paid, including the rationale and calculations. This practice will be beneficial during internal audits and if any disputes arise.
I hope this helps.
Note: This blog post is for informational purposes only and should not be construed as legal advice. Always consult with a legal professional for advice specific to your situation.
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