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. 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
- In most cases include all employees so that any payroll limitation could be administered in a relatively straightforward manner.
Each of these classifications includes a directive such as:
- The entire remuneration of each employee shall be included, subject to a maximum of $xxxxxx per year.
The maximum payroll amount may vary annually, to reflect wage inflation, and will be indicated in the classification description. Unlike the payroll limitations used for Executive Officers, there is a payroll maximum for each qualifying employee but no applicable minimum. Additionally, when the policy is in force for less than a 12-month period, the maximum payroll amount for these newly payroll limited classifications may only be prorated based upon the number of weeks in the policy period.
The current classifications subject to a specified maximum payroll amounts include all of the following:
| Code | Phraseology |
|---|---|
| 8743 | MORTGAGE BROKERS — no direct lending — all employees — including Clerical Office Employees, Clerical Telecommuter Employees and Outside Salespersons |
| 8803 | AUDITING, ACCOUNTING OR MANAGEMENT CONSULTING SERVICES — all employees — including Clerical Office Employees and Clerical Telecommuter Employees |
| 8820 | LAW FIRMS — all employees — including Clerical Office Employees, Clerical Telecommuter Employees and Outside Salespersons |
| 7607(1) | VIDEO POST-PRODUCTION — computer or electronic — all employees — including Clerical Office Employees, Clerical Telecommuter Employees and Outside Salespersons |
| 7607(2) | AUDIO POST-PRODUCTION — computer or electronic — all employees — including Clerical Office Employees, Clerical Telecommuter Employees and Outside Salespersons |
| 7610* | RADIO, TELEVISION OR COMMERCIAL BROADCASTING STATIONS – all employees – including Clerical Office Employees, Clerical Telecommuter Employees and Outside Salespersons |
| 8859(1) | COMPUTER PROGRAMMING OR SOFTWARE DEVELOPMENT — all employees — including Clerical Office Employees, Clerical Telecommuter Employees and Outside Salespersons |
| 8859(2) | INTERNET OR WEB-BASED APPLICATION DEVELOPMENT OR OPERATION — including Clerical Office Employees, Clerical Telecommuter Employees and Outside Salespersons |
| 9151* | THEATERS — musical entertainment — live performances — all performers and directors of performers |
| 9156* | THEATERS — dance, opera and theater companies — all performers and directors of performers — N.O.C. |
| 9181* | ATHLETIC TEAMS OR ATHLETIC FACILITIES — players, umpires, referees and game officials |
| 9610* | MOTION PICTURES — production — in studios and outside — all employees |
* Please refer to each classification phraseology for information concerning the application of payroll maximums to specific employees.
Effective September 1, 2022, the following classifications are subject to a maximum payroll amount:
| Code | Phraseology |
|---|---|
| 8741 | REAL ESTATE AGENCIES — all employees — including Clerical Office Employees, Clerical Telecommuter Employees and Outside Salespersons |
| 8749 | MORTGAGE BANKERS — all employees — including Clerical Office Employees, Clerical Telecommuter Employees and Outside Salespersons |
| 8801 | CREDIT UNIONS — all employees — including Clerical Office Employees, Clerical Telecommuter Employees and Outside Salespersons |
| 8808 | BANKS — all employees — including appraisers, bank guards and attendants, field auditors, office machine repair, Clerical Office Employees, Clerical Telecommuter Employees and Outside Salespersons |
| 8822 | INSURANCE COMPANIES — all employees — including Clerical Office Employees, Clerical Telecommuter Employees and Outside Salespersons |
| 8601(1) | ENGINEERS — consulting — mechanical, civil, electrical or mining engineers or architects — not engaged in actual construction or operation — including Clerical Office Employees, Clerical Telecommuter Employees and Outside Salespersons |
| 8601(2) | OIL OR GAS GEOLOGISTS OR SCOUTS — including mapping of subsurface areas — including Clerical Office Employees, Clerical Telecommuter Employees and Outside Salespersons |
| 8601(4) | FOREST ENGINEERS — including Clerical Office Employees, Clerical Telecommuter Employees and Outside Salespersons |
| 8874(1) | INSTRUMENT MFG. – electronic – professional or scientific – hardware or software design or development – including Clerical Office Employees, Clerical Telecommuter Employees and Outside Salespersons |
| 8874(2) | COMPUTER OR COMPUTER PERIPHERAL EQUIPMENT MFG. – hardware or software design or development – including Clerical Office Employees, Clerical Telecommuter Employees and Outside Salespersons – N.O.C. |
| 8874(3) | TELECOMMUNICATIONS EQUIPMENT MFG. – hardware or software design or development – including Clerical Office Employees, Clerical Telecommuter Employees and Outside Salespersons |
| 8874(4) | AUDIO/VIDEO ELECTRONIC PRODUCTS MFG. – hardware or software design or development – including Clerical Office Employees, Clerical Telecommuter Employees and Outside Salespersons |
Effective September 1, 2024, the following classifications will be subject to a maximum payroll amount:
| Code | Phraseology |
|---|---|
| 4297(1) | ELECTRONIC PRE-PRESS – all operations – including Clerical Office Employees and Clerical Telecommuter Employees |
| 4297(2) | GRAPHIC DESIGN – all operations – including Clerical Office Employees and Clerical Telecommuter Employees |
| 4512 | BIOMEDICAL RESEARCH LABORATORIES – all employees – including Clerical Office Employees and Clerical Telecommuter Employees |
| 8807 | NEWSPAPER, MAGAZINE OR BOOK PUBLISHING – no printing or distribution – editing, designing, proofreading or photographic composing — including Clerical Office Employees and Clerical Telecommuter Employees |
| 8834 | PHYSICIANS' PRACTICES AND OUTPATIENT CLINICS – all employees – including Clerical Office Employees and Clerical Telecommuter Employees |
| 8839 | DENTAL OR ORTHODONTIA PRACTICES – including Clerical Office Employees and Clerical Telecommuter Employees |
| 9043 | HOSPITALS – all employees – including Clerical Office Employees, Clerical Telecommuter Employees and Outside Salespersons |
Auditing Payroll Limited Classifications
When auditing policies with payroll limited classifications, the payroll for each qualifying highly compensated employee will need to be adjusted to apply the annual maximum. This can be handled in one of two ways, depending on the classification involved:
- Classifications 9151, 9156, 9610, 7610, 9181
- The classification footnotes identify the specific types of employees that the maximum is applicable to and directs that the maximum amount be prorated based on the number of weeks in which these employees worked during the policy period.
- The classification footnotes identify the specific types of employees that the maximum is applicable to and directs that the maximum amount be prorated based on the number of weeks in which these employees worked during the policy period.
- All other payroll limited classifications
- The limitation applies to all employees, and there is to be no proration for employees who work only part of the year. If the policy term is less than a full year, the maximum amount should be prorated to reflect this.
In both cases, the maximum amount applies after the application of other payroll adjustments such as overtime, severance pay or qualified Section 125 plan deductions.
Executive officers, LLC members, partners, and sole proprietors are still subject to prorating. When such persons are not executive officers during the entire policy period, the payroll limitation may be prorated based upon the number of weeks that such persons were executive officers during the policy period.
Classifications with Minimum Payroll Limitations
Although much less common than classifications with maximum payroll limitations, there are two which have minimum payroll amounts indicated in the classification footnote:
- 8039, Stores — department stores — retail — including Clerical Office Employees, Clerical Telecommuter Employees and Outside Salespersons, which has a minimum total payroll amount indicated in the classification footnote, and
- 7365, Taxicab Operations — all employees, which indicates that a minimum amount per taxicab dispatched or operated is applicable on an annual basis.