What is limited payroll? If you are part of a construction project in New York, I’m sure you have seen the term Limited Payroll at one point or another. The payroll limitation, which is a function of New York State’s average weekly wage, is updated on an annual basis. These updates are usually sent out by the New York Compensation Insurance Rating Board (NYCRIB). The most recent update was effective July 1, 2021, updating the current payroll limitation to be $1,594.57 per week. Update: The most recent update was effective July 1, 2022, updating the current payroll limitation to be $1,688.19 per week.
A payroll limitation is applied to the actual weekly payroll per employee in each of the eligible construction classification codes.
Typically, limited payroll equates to approximately 75% of the total standard Workers’ Compensation payroll. Employees working under nonresidential construction classifications are required to stay within the state’s reportable limits.
In 1999, the rating board implemented regulations for limited payroll rates. The reason for implementing a limited payroll system in New York was to allow for Union employers, as well as Prevailing wage companies a chance to compete against larger, open shop companies by creating a more equitable distribution of workers’ compensation premium between these high and low wage paying employers in the construction industry.
This means that if the employee earns more than the weekly limit, there is a cap placed on the reportable income for premium audit purposes. The law requires an employer to maintain true and accurate weekly payroll records for each employee. Each employee’s total weekly wages and total hours worked, are required to be reported. In addition, overtime, vacation, holiday, sick, and bonus pay must be segregated for each employee.
For example, without the payroll limitation, a union company paying its employees $2,000 per week with a Workers’ Compensation rate of $10 per $100 of payroll would pay a standard WC premium equal to $200 per week while a nonunion company paying employees $1,600 per week would pay only $160.
When payroll is limited to $1,594.57, both union and nonunion companies pay a premium equivalent to $159.46 per week thus equalizing the premiums.
What if the employer fails to keep proper records? The willful failure to keep proper records or the knowing falsification of any records may be prosecuted as insurance fraud under the Penal Law; and second, the employer would not be entitled to payroll limitation.
While the payroll limitation applies to construction including the remodeling, repair, and maintenance of existing structures, not only new construction, payroll limitation does not apply to any construction of one or two-family residential housing. In the case of one or two-family residential housing, the employer must provide documentation verifying the scope of work performed. If confirmed, premiums will be determined using traditional methods.
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Sources:
New York construction employment payroll … – NYCIRB. New York Construction Employment Payroll Limitation Program. (1999, August 9). Retrieved December 20, 2021, from https://www.nycirb.org/bulletins/rc1920.pdf
Objective. thought-leader. New York Compensation Insurance Rating Board. (n.d.). Retrieved December 20, 2021, from https://www.nycirb.org/
About the Author:
Trevor Casey is an Account Associate at CR Solutions and is based out of company headquarters in Alpharetta, GA. Follow Trevor on Linkedin and stay up to date on his recent insurance risk management articles and insights.
