If you read the business news you know that several large California employers plan to go public with an initial public offering (IPO) of stock in 2019. Employees of these companies who have been granted equity-based compensation – which can include stock options, restricted stock, restricted stock units, phantom stock plans and stock appreciation rights – will in some cases receive very large amounts of money in connection with these IPOs. Effective January 1, 2019, the California Workers’ Compensation Uniform Statistical Reporting Plan—1995 (USRP) was amended to include rules that direct when equity-based compensation may be excluded from reported payroll.

Some equity-based compensation vests or is paid on a scheduled or annual basis, or based on the achievement of performance goals or milestone anniversaries. These payments can represent a recurring portion of an employee’s overall compensation and, similar to a bonus, are included as reportable remuneration. Employee payroll-based contributions to fund equity-based compensation plans are similar to employee payroll-based contributions to fund pensions or deferred compensation plans and also must be included as reportable remuneration.

Payment of equity-based compensation due to accelerated cliff vesting triggered by an IPO of stock, or a change in majority ownership, is typically a nonrecurring, infrequent event that can produce very large increases in payroll that can result in volatility in reported payrolls from year to year without similar shifts in underlying loss exposure. These amounts are not a regular or recurring portion of an employee’s overall compensation and are therefore not a reasonable proxy for workers’ compensation exposure during an individual policy period. Equity-based compensation that is triggered by an IPO of stock, or a change in majority ownership, is not included as reportable remuneration.

Learn more about payroll-reporting rules for equity-based and other compensation in the USRP at Part 3, Section V, Rule 1, Payroll – Remuneration, and in Appendix II, Payroll/Remuneration Table.

The Report on Payroll–Remuneration: Equity-Based Compensation Plans Study is available in the Research section of wcirb.com.

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