Q & A: Payroll Exclusions

Q. “We have eliminated a number of positions at our company this year. As part of our severance package we include accumulated vacation pay, accrued sick leave and severance pay. Are all of these included in the calculation of our premium?”
A. While payroll is often referred to as the basis for premium, in most states it is actually remuneration and there are some exclusions from what is counted as remuneration. Accumulated vacation pay and accrued sick leave are included for premium computation as earned income. However, severance pay should not be included in the payroll as a basis of premium computation because it is not earnings of the employee but is merely paid as a matter of labor policy to carry the employee over until another position is procured. Severance is excluded because it is not "earned wages," whereas sick leave/vacation is “earned time'” and the pay associated with that “earned time” is included.


Q. “I understand that tips can be excluded from remuneration for premium calculation. We run a banquet service and assess a service fee. Does the service fee fall under the category of tips?
A. For tips to be excluded, they must be freely given by a third party and not controlled by the employer. The service fee is not freely given and is paid to the employer; as such they are not excludable. It is only tips directly paid to employees by customers that are excludable.