TDI Update: Payroll inclusions/exclusions

January 24, 2024

Workers’ comp changes to payroll calculations

The list of payroll items that can be excluded from workers’ compensation premiums has recently been updated, which could lower your clients’ insurance costs. Last year, the Texas Department of Insurance (TDI) approved a National Council on Compensation Insurance (NCCI) filing, Revisions to Basic Manual Rules Related to Payroll Inclusions and Payroll Exclusions. The updated rules clarify how insurance carriers classify payroll inclusions and exclusions when determining premium and affects policies with an effective date of January 1, 2024 and after.

The NCCI item was intended to clarify several rules related to payroll. With employers offering additional employee compensation benefits, such as stock options and retroactive wages, NCCI introduced this filing to address concerns from carriers about determining payroll for employees receiving these benefits.

Below, we’re sharing some of the significant guidelines that Texas Mutual and other Texas workers’ compensation carriers will be following with these adopted updates.

Employer compensation plans
Items to be included in payroll	Items to be excluded from payroll
Employee purchases of stock and/or stock options Employer contributions to cashless exercises of stock options Equity-based compensation (paid in stock) Deferred compensation payments to employees Gross wage reductions to fund deferred compensation plans Certain retroactive wages	Deferred compensation payments to terminated/retired employees Employer contributions to stock purchase plans Employer contributions to exercises of stock options, other than cashless Employer contributions to deferred compensation plans Employer contributions toward employee purchases of discounted stock Equity market value resulting from IPO or ownership changes Retroactive wages to terminated or retired employees

Employer compensation plans

Items to be included in payroll

Items to be excluded from payroll

Employee purchases of stock and/or stock options
Employer contributions to cashless exercises of stock options
Equity-based compensation (paid in stock)
Deferred compensation payments to employees
Gross wage reductions to fund deferred compensation plans
Certain retroactive wages

Deferred compensation payments to terminated/retired employees
Employer contributions to stock purchase plans
Employer contributions to exercises of stock options, other than cashless
Employer contributions to deferred compensation plans
Employer contributions toward employee purchases of discounted stock
Equity market value resulting from IPO or ownership changes
Retroactive wages to terminated or retired employees

The update also revises rules for payroll exclusions related to expense reimbursements. The following items are allowable for exclusion:

Expense reimbursements must be for business purposes and verifiable.
Expense reimbursements do not offset wages.
Non verified reimbursements are limited to IRS guidelines.

We value our agent partners and work hard to keep you informed of workers’ compensation regulation updates. If you have any questions about how this may affect a specific policy, we encourage you to speak with your Texas Mutual underwriter or territory manager.