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Classifications with Maximum Payroll Limitations Starting in 2020

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Classifications with Maximum Payroll Limitations Starting in 2020

January 15, 2020

Historically, limitations on an individual’s annual payroll for workers’ compensation purposes have been applied in California for certain types of highly compensated employees. The California Workers’ Compensation Uniform Statistical Reporting Plan—1995 (USRP) limits the reported annual payroll for executive officers, partners, individual employers and members of a limited liability company. In addition, the same annual payroll limitation has historically applied to select employees in classifications with many highly compensated employees and great variability in wages. These classifications include:

The Workers’ Compensation Insurance Rating Bureau of California’s (WCIRB’s) ongoing review of payroll as the basis of workers’ compensation premium found that at very high wage levels, there is no evidence of increasing exposure to workers’ compensation losses with increasing wage levels. In addition, the advisory pure premium rates and expected loss rates for some classifications with many high-wage employees had become very low, such that even a $0.01 change in the rates was significant on a percentage basis.

As a result, the WCIRB identified classifications that:

  • have unusually high levels of employees with wages above the current USRP annual payroll maximum,
  • have relatively low advisory pure premium rates that are likely driven by the high wage levels in the industry, and
  • include all employees so that any payroll limitation could be administered in a relatively straightforward manner.

For policies effective on or after January 1, 2020, seven classifications are newly subject to the USRP annual payroll maximum. These classifications are:

Each of these classifications includes the following directive:

The entire remuneration of each employee shall be included, subject to a maximum of $139,100 per year. When the policy is in force for less than a 12-month period, the maximum payroll amount shall be prorated based upon the number of weeks in the policy period.

Note that other payroll-limited classifications apply the limitation only to certain employees and have weekly prorating instructions; the rules for prorating the payroll of executive officers, partners, individual employers and members of a limited liability company also have weekly prorating instructions. The payroll limitations in the newly limited classifications apply to all employees, and the limitations are only prorated in the case of a shortened policy period.