Do I Include Tips In My Payroll For Workers Compensation Insurance?

Man, I haven’t posted anything new for way too long, mostly because I have been devoting a lot of time to studying for my next CPCU test…..”Accounting and Finance for Insurance Professionals.” Does anything sound more dry and boring than that?? Accounting/finance/insurance…….sounds worse than influenza/ the DMV/ or paying bills. Oh well, I am learning a lot.


Anyways, someone asked me a good question today. This came from a salon owner, “Do I include tips in my payroll estimate (for workers compensation insurance)? The answer to this question is NO, do not include tips. Tips and severance pay are to be disregarded in developing payroll with one exception: sums for accrued vacations, sick pay, commissions, and bonuses included in severance pay shall be included.

One the same note, with regards to overtime, only straight time is used in the premium calculation for workers compensation insurance. In other words, all hours worked are considered but only at straight-time rates. Premium rates for pay of overtime are disregarded. However, payroll records must be kept which show these details.

Bonuses are considered as regular compensation and used in developing payrolls.

Premium pay for working certain hours on the clock, such as swing shift or night shift work, is used in developing payrolls.


Source: Merritt Manual

Tags: , , ,

About Jimmy Kinmartin - Business Insurance & Risk Management Broker

Jimmy is a California licensed Property & Casualty AND Accident & Health insurance agent working at the ISU - Olson Duncan Insurance brokerage in Torrance, CA. He grew up in Fullerton, CA and graduated from Servite High School in Anaheim and Loyola Marymount University in Los Angeles and currently lives in Tustin, CA. Have questions? Just ask! Or, follow Jim on Twitter at @JimKinmartin

3 responses to “Do I Include Tips In My Payroll For Workers Compensation Insurance?”

  1. Bill Hoos says :

    I received my CPCU designation almost 25 years ago and I still wake up at night with palpitations over the finance and accounting section. – Hang in there you will get through it.

    Great job explaining the WC payroll rules. It’s amazing how many insureds don’t understand them. Even more amazing is how so many auditors misinterpret them.

  2. WealthBridge says :

    I am an owner of a small restaurant. I often get a tips. That is also my question. This article definitely helps me realize where to include tips. Thanks for sharing this knowledgeable article.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: