Are tips included in workers' comp payroll?
Usually not. In the states that rate workers' comp on the NCCI manual, which is most of them, tips and gratuities are excluded from the payroll the premium is based on, as long as the payroll records show them separately from wages. If the report your company hands the auditor lumps tips in with wages, the premium is calculated on money the rule says to leave out. The fix is a payroll report that breaks tips out, and a premium audit that uses it.
How the premium is built
Workers' comp is rated per hundred dollars of payroll, by job class. At renewal the carrier estimates the year's payroll and charges on the estimate. Sixty to ninety days after the policy ends, the premium audit reconciles the estimate to the real payroll, and the bill or the credit follows. The premium audit works from the payroll reports the company provides.
The rating rules say what counts as payroll. Wages, salaries, bonuses and commissions count. Tips and gratuities do not, as long as they are documented separately. Tips are one of several items the rule leaves out. For a restaurant they are the one that matters, because on a tipped payroll they can be a large share of what a server takes home.
Where it goes wrong
A W-2 includes tips. So does the gross-pay column on most payroll summaries. An auditor who is handed either one uses it, and the premium is then based on wages plus tips. The rule only helps if the report shows tips in their own column: cash tips declared, credit card tips paid through payroll, both separate from the hourly wage.
Most payroll systems can produce that report. It rarely gets discussed, and it only works if the payroll report shows tips separately. A few states run their own rating bureaus or state funds with their own rules; your agent checks which applies before the premium audit, not after.
What to do before the next premium audit
Ask your payroll provider for a payroll report with tips in a separate column, by employee, for the policy year. Have your agent confirm the rule in each state you operate in and tell you in writing how the premium audit will treat tips. When the auditor asks for payroll, hand over that report, not the W-2 totals.
If the last premium audit was run on gross payroll with tips in it, ask your agent whether it can be revisited. Carriers have a window for that, and it closes. And the renewal estimate for next year should be built on wages without tips, so the premium starts in the right place instead of being corrected a year later.
When workers' comp has to be in force on a new company, and from whose first paycheck, is in the guide: Insurance through a build-out. Question five on the insurance check is the audit bill.