Page 194 - Essentials of Payroll: Management and Accounting

Benefits
may be listed as wages, as well as the overtime premium on hours
worked. By reducing the total amount of reported payroll expense, the
total cost of the workers’ compensation insurance will also be reduced.
Example. The payroll manager of the Humble Pie Company was

responsible for managing the cost of workers’ compensation. In the pre-
vious year, she was aware that the 58 manufacturing positions reported
to the insurance company were subject to a four-times multiplier for
insurance pricing purposes, because they worked in risky jobs, while the
clerical staff only had a one-times multiplier.Thus, by legitimately shifting
employees from the manufacturing category to the clerical category, she
could reduce the cost of workers’ compensation insurance for those

positions by 75 percent. In reviewing the payroll records, she found that
three production supervisors and one security guard were classified as
manufacturing positions. She shifted the classification of these positions
to clerical ones.

I N THE REAL WORLD

Reclassify Employees to

Reduce Insurance Costs

A telemarketing firm had been classifying its employees largely as
sales personnel on its workers’ compensation application, because
they were primarily engaged in “push” sales calls over the phone.
However, the firm found that this classification resulted in a one-
third increase in the cost of its worker’s compensation insurance,
because the assumption by the insurance company was that people
in this position traveled constantly and so were more likely to be
injured in traffic accidents while on company business. After dis-
cussions with the insurer, the telemarketing firm reclassified its
entire sales staff as clerical positions, thereby dropping the cost of
its workers’ compensation insurance by one-third.

167