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Thread Title: section 125 and reportable wages
Created On Tuesday November 22, 2005 12:12 PM

er california
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Tuesday November 22, 2005 12:12 PM

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We are getting conflicting information. Our benefits admin states that monies paid by employees into section 125 premium only plans are exempt from workers comp taxes, others are saying that only if its a full cafeteria plan are they deductible. For premium only plans the wages are subject to workers comp.
What do you know?

stewshe@comcast.net
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Tuesday November 22, 2005 4:34 PM

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er california,

I think this post should be moved to the "Agents/Brokers" section.

Much of your post is incomprehensible to me. I do know it is improper for an employee to be asked to pay any part of w/c coverage per Labor Code Sec. 3751(a).

Also, payments for insurance premiums paid by employers are not "taxes."

I have no idea what a "section 125 premium only plan" is, much less a "full cafeteria plan."

You probably have an insurance agent/broker. Consider asking them? Also, the underwriting department of the insurance carrier might also be able to help you?

However, as an ex-military person, I'd suggest you go up your chain of command. Checking with either the insurance agent/broker/underwriter might be stepping on some toes, so to speak, in other departments, e.g., "benefits admin." If you disagree with or question what they have told you, ask them for authority, or some documentation to support what they tell you.

Then do the same for the "others."

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Stew (James T. Stewart) e-mail: stewshe@comcast.net
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Edited: Tuesday November 22, 2005 at 4:35 PM by stewshe@comcast.net

workcompbroker
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Monday November 28, 2005 2:32 PM

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Good afternoon, er california -

I too am a little unclear on what you are asking, so I'm going to respond making a few assumptions. ( That's my disclaimer... )

Your W/C premium is based upon payroll. While section 125 plans are not taxable from the Employee's perspective, I do not know whether there is a liability for taxes on the Employer's side. If that portion of the EE's salary is considered "reportable" payroll from the ER perspective, then yes, this would be considered when your carrier calculates the premium.

However, if this is not reportable as payroll ( which I quite frankly find unlikely ), then that money would not be considered in the calculation of your W/C premium.

Either way, this is an underwriting question and I recommend you contact either ( Or BOTH ) your W/C underwriter and your Health Insurance underwriter. The W/C underwriter will, of course, have some incentive to considering these monies as this will ultimately increase your premium. The Health Insurance underwriter should be well versed on the laws. If they are not, I recomend you search for a better versed broker.

Good luck!

CAslew
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Tuesday November 29, 2005 2:21 PM

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Under the CA Uniform Statistical Rating Plan, Section IV (1) (g) Payroll - Remuneration, is the following:

Salary Reduction and Cafeteria Benefit Plans.Text The amount by which an employee's salary is reduced to fund the welfare or fringe benefit portion of a cafeteria plan qualified under Section 125 of the Internal Revenue Service Code shall NOT be included in the payroll. The amount by which an employee's salary is reduced to fund a pension or deferred compensation plan, however, SHALL be included in the payroll regardless of whether such a plan is a portion of a cafeteria plan.

It does not sound as though your premium only plan is funding a pension, nor is it a deferred compensation plan. Your interpretation may vary...

AuditorBob
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Monday September 15, 2008 8:55 PM

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Section 125 of the Internal Revenue Code, enacted by Congress in 1978, allows employers to deduct employee contributions for benefits on a pretax basis. Pretax benefits lower payroll-related taxes for both the employer and employees.

Section 125 offers several alternative plans: three of the most common are Premium Only Plans (POP's), Flexible Spending Accounts (FSA's), and Cafeteria Plans.

As referenced by CAslew, Part 3, Section V, Paragraph 1(g) is the rule. However, that rule was amended effective 1-1-01 to clarify the recordkeeping requirements for the exclusion of Section 125 plans. Employee contributions to such pretax plans can be excluded from workers' compensation premium computation in CA as long as (1) the employee's contribution is for welfare or fringe benefits (not 401k's, pension, retirement), and (2) these amounts are shown individually by employee and summarized by code.

Apparently, OK also allows this credit for workers' comp but I'm not familiar with their rules. No other states allow this credit.

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AuditorBob
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Edited: Thursday September 18, 2008 at 8:12 AM by AuditorBob

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