RULE V - PREMIUM BASIS

Item 4 of the Information Page – continued

Premium shall be computed on the basis of the total remuneration paid or payable by the insured for services of employees covered by the policy.

Exception

Some classifications have a different premium basis. For example, premium for domestic worker classifications is computed on a per capita basis. Refer to Rule XIV.

1. Definition
   Remuneration means money or substitutes for money.
2. Inclusions
   Remuneration includes:
   a. Wages or salaries;b. Total cash received by employees for commissions or draws against commissions;c. Bonuses;

   d. Stock bonus plans – market value of stock at the time it is given to employee (refer to Exclusions, m) as well as the amount an employee’s salary is reduced to contribute to equity-based compensation plans other than stock options;

   e. Extra pay of overtime work;

   f. Pay for holidays, vacations or periods of sickness or accrued sick time;

   g. Payment by an employer of amounts otherwise required by law to be paid by employees to statutory insurance or pension plans, such as the Federal Social Security Act or Medicare;

   h. Payment to employees on any basis other than time worked such as piece work, profit sharing or incentive plans;

   i. Payment or allowance for hand tools or power tools used by hand provided by employees and used in their work or operations for the insured;

   j. The rental value of housing (e.g. an apartment or a house) provided for an employee based on comparable accommodations;

   k. The value of lodging other than an apartment or house received by employees as part of their pay to the extent shown in the insured’s records;

   l. The value of meals received by employees as part of their pay to the extent shown in the insured’s records;

   m. The value of store certificates, merchandise, credits or any other substitute for money received by employees as part of their pay;

   n. Musicians or entertainers who are not independent contractors shall be included computation of premiums of hotels or restaurants (maximum of $1,325 per week for each musician orentertainer);

   o. Adjustments necessary to bring employees, such as tipped employees, to federal minimum wage as reported by the United States Department of Labor;

   p. Payments for salary reduction, retirement or cafeteria plans (IRC 125), health savings accounts and flexible spending accounts which are made through employee       authorized salary reductions from the employee’s gross pay;

   q. Prevailing wage payments and fringe benefits paid directly to employees based on required government-specified minimum wage rates, including but not limited      to the Davis-Bacon Act or the Pennsylvania Prevailing Wage Act (see Section 2 – General Auditing and Classification Prevailing Wage Payments);

   r. Annuity plans (see Section 1 Rule V, F.2. – Salary Reduction Plans);

   s. Expense reimbursements to employees to the extent that an employer’s records do not substantiate that the expense was incurred as a valid business expense (see Section 1 Rule V,F.1 – Employee Expense Reimbursements);

   t. Payment for filming or taping of commercials excluding subsequent residuals which are earned by the commercial participant(s) each time the commercial appears in any type of media;

   u. Automatic Gratuities (See Tips vs. Automatic Gratuities in the General Auditing & Classification Information section);

   v. Deferred or retroactive compensation paid to current employees at time of payment.

3. Exclusions
   Remuneration excludes:
   a. Payments by an employer to group insurance or group pension plans for employees, other than payments covered by Rule V – B. 2. g.;b. Payments made by the employer to a Group Insurance, Pension Plan or a third party administrator as part of a prevailing wage requirement. (For additional information please see the Section 2 General Auditing and Classification Information of this Manual.);

   c. The value of special rewards for individual invention or discovery;d. Dismissal or severance payments except for time worked or accrued vacation;e. Tips received by employees after minimum wage adjustment has been applied (refer to Inclusions, o.);

   f. Payments for active military duty;

   g. Employee discounts on goods purchased from the employee’s employer;

   h. Expense reimbursements to employees to the extent that an employer’s records substantiate that the expense was incurred as a valid business expense (see Section 1 Rule V, F.1 – Employee Expense Reimbursements);

   i. Meal money for late work;

   j. Work uniform allowances;

   k. Sick pay paid to an employee by a third party such as an insured’s group insurance carrier which is paying disability income benefits to a disabled employee;

   l. Employer provided perquisites (“perks”) such as:

   (1) Use of company-provided automobiles;
   (2) an airplane flight;
   (3) a discount on property or services;
   (4) club memberships;
   (5) Tickets to entertainment or sporting events;
   (6) Educational assistance;
   (7) Relocation and moving expenses;

   m. Stock option plans – difference between market value of stock and lower option price is not included as remuneration;

   n. Board of Directors’ fees;

   o. Employer contributions to employee benefit plans such as health savings accounts and flexible spending accounts.

   p. Deferred or retroactive compensation paid to retired or terminated employees not employed during the policy period, provided that records adequately show these employees were no longer employees during the policy period.

   q. Payments made by an employer or any public governmental entity to paid furloughed employees as a result of federal, state, and/or local emergency orders, laws or regulations, issued due to the COVID-19 (coronavirus) pandemic which impact an employer’s staffing or business operations. However, any appropriated funds or loans received by an employer as authorized by any law or regulation, or public governmental entity, that are used by an employer specifically to retain or hire working employees are not excluded.

   Refer to Rule V.F.10 for the definitions of paid furloughed employees and payments to paid furloughed employees.

   Item q. is applicable to new, renewal and in-force policies effective on March 1, 2020 through June 30, 2023. Item q. does not apply to new or renewal policies with effective dates on or after July 1, 2023.

4. Payroll
   Payroll means remuneration. The carrier rating values in this Manual shall be applicable to the remuneration of all employees of the insured without exception, and compensation policies shall not be written except upon the entire payroll of the risk which is the subject of the insurance which risk shall be divided into risk classes where specifically permitted or directed by these rules, but not otherwise. Under no circumstances shall a compensation policy be written on any part of the risk leaving another part of the risk uninsured.
5. Employee Savings Plans
   Employee Contributions made in the form of an employee authorized salary reduction, which are diverted by an employee for payment, by the employer, into a savings plan shall be included as remuneration for premium computation purposes. Such payments made by the employer into the plan, of employee salary reduction contributions, shall not be employer contributions. Employer Contributions of employer funds, made by the employer, the amount which being determined by reference to employee contributions, shall not be considered remuneration for premium computation purposes unless same contributions are reported by the employer as current taxable income to the employee. 

1. Estimated Payrolls by Classification For each classification shown on the Information Page, the estimated total annual payroll shall be stated in the column headed “Premium Basis –Estimated Total Annual Remuneration.”
2. Determination of Estimated Payrolls Estimated payrolls shown on the Information Page shall reflect actual remuneration anticipated by the insured during the policy period. Such estimates shall be subject to substantiation by records or inspections.
3. Approval of Estimated Payrolls Adequacy of estimated payrolls is subject to approval by the Pennsylvania Compensation Rating Bureau.

All payrolls shall be shown to the nearest dollar. A remainder of $.50 shall be rounded to the next higher dollar.

1. How Payroll Limitation Applies For executive officers, sole proprietors, partners and members of a Limited Liability Company (LLC) that have obtained coverage and classifications with notes which indicate payroll limitation, the payroll on which premium is based shall exclude that part of the employee’s average weekly pay in excess of the applicable weekly limitation, provided:

   a.  Books and records are maintained to show separately the total payroll earned by each employee whose average weekly pay for the total time employed during the policy period exceeds the weekly payroll limitation and;

   b.  Separate records are maintained in summary by classification for such employees.

2. Partial Week A part of a week shall be treated as a full week in determining average weekly pay.

1. Employee Expense Reimbursements
   Reimbursement expenses (except for hand or power tools as provided for in Rule V., B. 2. i.) paid to employees may be excluded from the audit provided that all three of the following conditions are met:

   a. The reimbursed expenses paid were incurred upon the business of the employer, and;

   b. The amount of each employee’s expense payment is shown separately in the records of the employer, and;

   c. The amount of each expense reimbursement reflects the actual expenses incurred by the employee in the conduct of his or her work.

2. Salary Reduction Plans
   In determining the remuneration to be used for premium computation purposes, no deduction shall be permitted for contributions to employee benefit plans made by employees either directly or through salary reduction agreements. The typical salary reduction plan involves a binding salary reduction agreement through which a specific percentage of the employee’s salary is not paid to him or her but is paid into a pension, medical or savings plan (Section 125 IRC).
   
   
3. Strike Periods (Wages Paid)Wages paid to employees who are not on strike but who are unable to perform their normal duties because of a strike shall be assigned to the classification applicable to the work usually performed by such employees, except that if any such employees perform absolutely no work for their employer and are not present on their employer’s premises during such period, such wages shall be assigned to Code953, Clerical Office Employees, provided the facts are clearly disclosed by the employer’s records.
   
   
4. Traveling Time Payments
   Payments made by an employer to an employee to reimburse him or her for time spent in traveling to or from work or to or from a specific job shall be considered as remuneration in accordance with the provisions of Rule V., B. of the Manual, and such remuneration shall be assigned to the Manual classification which applies to the work normally performed by such employee.
5. Wages Paid for Idle Time
   Idle time is downtime that occurs when employees are not working and the employer pays the employees for the time not worked. Idle time does not include “paid furloughed employees” or “payments to paid furloughed employees” as defined in Rule V.F.10.

   a.  The entire amount of wages paid for idle time shall be included as payroll.

   b.  Wages paid for idle time due to the following causes shall be assigned in their entirety to the classification which applies to the work normally performed by the employee involved:
   1.   Suspension or delay of work on account of weather conditions.
   2.   Delays while waiting for materials.
   3.   Delays while waiting for another contractor to complete certain work.
   4.   Delays arising from breakdown of equipment.
   5.  “Stand-by” time where employees such as operators of cranes, hoists or other equipment are on the job but their active services are not required continuously.
   6.  Special union requirements or agreements between employer and employees calling for pay for idle time under specified circumstances.
   7.   Other cause of similar nature.

   c.  Wages paid to key employees of construction, erection or stevedoring risks, such as superintendents, foremen or engineers, for periods during which no jobs are in progress, shall be assigned to the classification applicable to the work which each one normally performs. (Exception: Reference Strike Periods – Wages Paid.)

   d. The entire amount of wages paid for idle time to an employee engaged in work other than construction, erection or stevedoring must be assigned without division to the classification which normally applied to that employee.

6. Religious Exclusions (Members of certain religious sects whose tenets prohibit benefits from insurance provided the sect makes provisions for its members).Workers’ compensation insurance is not compulsory for the above individuals. As per Section304.2(a) “An employer may file an application with the Department of Labor and Industry to be excepted from the provisions of this Act in respect to certain employees. The application shall include a written waiver by the employee of all benefits under the Act and an affidavit by the employee that he is a member of a recognized religious sect or division thereof and is an adherent of established tenets or teachings of such sect or division by reason of which he is conscientiously opposed to the acceptance of the benefits of any public or private insurance which makes payments in the event of death, disability…”Documentation to support the above election must be in evidence at time of audit. Payroll to the above will then be excluded for purposes of premium determination.
7. Members of Religious Orders
   Refer to Section 2 of the Pennsylvania Workers’ Compensation Manual. In Pennsylvania, because of the interest of some of the Catholic dioceses in providing coverage for members of orders on a voluntary basis, specific underwriting procedures as well as per capita rates were adopted by the PCRB. When such individual is assigned to perform duties in churches, hospitals, schools or other institutions, those institutions may wish to provide coverage as well. Any remuneration paid to the order on behalf of its members would be excluded, and the appropriate per capita rates would be applied.
8. Subcontractors (Applicable Contracting Classifications)
   Consideration has been given to questions which have arisen regarding the classification procedure fora subcontractor who performs a single type of work on a contracting project or job. This situation is illustrated by Code 603, Sewer Construction, where portions of the work such as excavation may be subcontracted.Consistent with the classification treatment which has been generally observed, it has been ruled that such subcontracted work shall be classified on the basis of the classification describing the particular type of work involved. Thus, the subcontractor who only performs excavation work in connection with the construction of a sewer would be classified as Code 609, Excavation, rather than as Code 603, Sewer Construction.The ruling in connection with concrete construction has been continued. This requires that all operationsincluding making and erecting forms, placing reinforcing steel and stripping forms, when done bysubcontractors, shall be assigned to the appropriate concrete construction classification.These rulings apply only to insured subcontractors. Uninsured subcontractors, covered under the principal contractor’s policy, will continue to be classified on the basis of the classifications which would apply if the work were performed by the principal’s own employees.
9. Outworkers/Homeworkers
   Under Section 104 of the Pennsylvania Workers’ Compensation Act an employee is defined as “All natural persons who perform services for another for a valuable consideration exclusive of persons to whom articles or materials are given out to be made up, cleaned, washed, altered, ornamented, finished or repaired, or adapted for sale in the workers’ own home, or on other premises, not under the control or management of the employer.”A review of the relevant case law by the PCRB counsel indicated the definition of an “employee” is not of significance in disputes over the coverage status for individuals who are injured while working in the home. Instead, the focus is on whether the injury occurred in the furtherance of the business of the employer. Therefore, the ability to resolve disputes involving coverage status for an outworker/homeworker, as defined in the Act, remains a legal question beyond the PCRB’s authority. Accordingly, the employee status of an outworker/homeworker is left to the discretion of the individual insurance carrier.
   
   
10. Payments to Paid Furloughed Employees During Federal, State, and/or Local Emergency Orders, Laws, or Regulations Issued Due to the COVID-19 (Coronavirus) Pandemic
    a.For purposes of this, “paid furloughed employees” and “payments to paid furloughed employees” are defined within this rule. “Paid furloughed employees” means employees who continue to receive payments during a temporary layoff or an involuntary leave and are not performing any work duties for an employer.
    b.  “Payments to paid furloughed employees” means payments made by an employer or any public Governmental entity to paid furloughed employees as a result of federal, state, and/or local emergency orders, laws or regulations, issued due to the COVID-19 (coronavirus) pandemic which impact an employer’s staffing or business operations. Such payments do not include any appropriated funds or loans received by an employer as authorized by any law or regulation, or public governmental entity, that are used by an employer specifically to retain or hire working employees.
    c.  Payments to paid furloughed employees must be assigned to Code 1212, in accordance with the Statistical Plan. Payments to paid furloughed employees made in  accordance with this RuleV.F.10 are excluded from the premium, experience rating and merit rating calculations only if the employer keeps separate, accurate, and verifiable records. If separate, accurate, and verifiable records are not maintained, payroll is assigned to the classification for work normally performed by the employee prior to any emergency orders, laws, or regulations issued due to the COVID-19(coronavirus) pandemic.
    d.  If an employee is requested to perform any duties for an employer, the employee is not deemed apaid furloughed employee for any period of time they are performing duties for the employer. If the employee is not deemed a paid furloughed employee, payroll must be assigned to the classification applicable to the work being performed in accordance with Manual Rule IV.A.1.
    e.  Rule V.F.10 is applicable to new, renewal and in-force policies effective on March 1, 2020 through June 30, 2023. Rule V.F.10 does not apply to new or renewal policies with effective dates on or after July 1, 2023.