Setting up Workers Compensation Deductions

Workers Compensation is an employer tax. You can set up different workers' compensation codes based on the tax liability for the employee position. For example, the tax liability is higher for factory workers than for clerical workers. The National Council on Compensation Insurance, Inc. (NCCI) recommends rates by industry and by the job being performed; however, each state/province sets the specific rates.

Every position type requires a Workers' Compensation code. Each code can use a different expense account, rate basis, premium amount, and earning limits.

On the Deduction and Earning Codes form, set up at least one code where the Type is set to Worker's compensation. In the Worker's Comp tab, specify this information:
Rate Basis
Select the rate basis for a Worker's Compensation deduction:
- Percent: The premium amount is to be calculated as a percentage of wages.
- Work Unit: The premium amount is to be calculated as a fixed amount per work unit. Some states base Workers' Compensation on the number of work units. In this case, your payroll
Premium Rate

Specify the premium rate for the Workers' Compensation deduction. This value is used as a multiplier in calculating and posting Workers' Compensation liability. This amount should be a percentage if the Rate Basis is Premium and a fixed amount if the Rate Basis is Work Unit.

WC Class Code and Description

Specify a class code and description for this D&E code, as provided by NCCI. For example, an office worker has a lower risk of injury, and therefore a different class code, than a construction worker.

Year to Date Earn Limit

Specify the maximum amount of yearly earnings on which the percentage of Workers' Compensation can be taken. An entry of zero indicates there is no maximum earnings limit. An earnings limit is only valid when the Rate Basis is a percentage of wages.

Per Earn Limit

Specify the maximum amount of current earnings on which the percentage of Workers' Compensation can be taken, per pay period. A current earnings limit is only valid when the rate basis is a percentage of wages.

Work Unit Description

Specify a description to identify the work unit. A work unit descriptor is only beneficial when the Rate Basis is a Work Unit type.
When you set up other types of deduction and earning codes, if the Type is set to Before Tax Deduct, Earning, Pre-Deduct Earning, Meals, or Tips, and the earnings are exempt from Workers' Compensation premium calculations, select the Workers Comp check box.
When you create a position on the Positions form, in the Workers Compensation field, select a code that applies to the currently selected position details.
When you set up an employee on the Employees form, in the Workers Compensation field, select a code that applies to the currently selected employee. Only codes where the Type is set to Worker's compensation are listed.
In the Payroll for Pay Period form, if the rate basis is determined in work units, specify the number of work units that the employee has generated during the current pay period in the Workers Compensation for Work Unit field.
During Payroll Processing, the employer-paid Workers' Compensation amount and the gross wage amount on which it is based are displayed.