Overtime Pay and Workers' Compensation Premiums
Workers' compensation premiums are generally calculated on the total payroll, which includes overtime earnings, because the insurance covers the risk of injury during any work performed, regular or overtime.
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Why Overtime Is Included in the Premium Base
Insurance carriers use the total wages paid to assess the exposure to workplace injuries. Since overtime hours increase the amount of work performed and the potential for injury, they are treated the same as regular hours in the premium calculation.
How Employers Calculate the Premium
Most states require employers to report total payroll, including overtime, each quarter. The premium is then determined by multiplying the payroll by the classification rate set for the specific job type.
Variations by State and Policy
Some states allow a small exemption for overtime if it is less than a certain percentage of total wages, but this is rare. Employers should check their state's workers' compensation board guidelines and their policy contract for any special provisions.
Practical Steps for Employers
- Include all overtime wages in quarterly payroll reports.
- Verify classification codes to ensure correct rates.
- Review policy documents for any state‑specific exemptions.