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About Workers' Compensation in QuickBooks Desktop

If you have a payroll service subscription, Intuit offers a pay-as-you-go service that automatically pays Workers' Compensation premiums every time you run payroll. Alternatively, you can manually track and report your premiums using the manual Workers Compensation feature in QuickBooks.

Terminologies
  • Workers Compensation code - the way Workers' Compensation insurance companies divide the types of work your employees perform, so they can determine what insurance rate to assign to each type of work.
  • Experience Modification factor - rates assigned by some insurance companies to use when you calculate your Workers' Compensation premiums. This rate is based on your company's record of Workers' Compensation claims. The better your track record, the lower your rate (or at least the fewer increases), which sometimes results in a discount on your Workers' Compensation premiums. The more claims you have, the higher your rate, which sometimes results in a higher premium.

Note: You must set up the manual Workers Compensation feature using the Workers Compensation Setup Wizard before you begin paying employees or your reports might be incorrect or incomplete.
  1. Go to the Edit menu, then select Preferences.
  2. Select Payroll and Employees on the left, then go to the Company Preferences tab.
  3. Select Workers Compensation.
  4. Put a check in the Track Workers Comp checkbox. Also put checks to the following checkboxes:
    • Display message to assign codes. - to display the Workers Comp messaging in QuickBooks.
    • Exclude overtime premium from Workers Comp calculation. - to show overtime premium as a separate item on your report.
  5. Select OK, then OK.
  6. Go to the Employees menu, then select Workers Compensation > Manually Track Existing Workers’ Comp Policy. Complete the Workers Compensation Setup Wizard. Note that this allows you to set up a code for each employee.

Premiums accrue as you write paychecks

Each time you write a paycheck, QuickBooks accrues Workers' Compensation premiums for each Earnings item that has a Workers Compensation code assigned to it. If you assigned a default code to an employee in the Workers Compensation setup, QuickBooks automatically assigns that code to the employee's Earnings items on their paychecks.

I just started using the Workers Compensation feature in the middle of the insurance year

The manual Workers Compensation feature can only track your premiums from the time you begin using the feature. There is no way to enter year-to-date information for your Workers' Compensation premiums.

If you start using the feature in the middle of your insurance year, you'll have to combine the information QuickBooks tracks for you with the information you tracked outside of QuickBooks before you started using the feature. That way, you'll get the full picture of your Workers Compensation obligations for your insurance year.

Example:

Let's say your Workers Compensation insurance policy begins on August 1 and ends on July 31. Now, let's say you begin using the manual Workers Compensation feature in QuickBooks on November 1.

At the end of the year, on July 31, when you need to assemble a complete picture of your accrued premiums for the year, you'll need to run a Workers Compensation Summary report for November 1 to July 31 and combine that data with the information you tracked manually from August 1 to October 31.

The manual Workers Compensation feature is not set up to support workers compensation calculations for multiple states. There are some things you can do to use the feature for at least part of your calculations.

To set it up, complete the Workers Compensation Setup Wizard with these additional instructions:

  • Create different Workers Compensation codes for the same jobs in different states. This allows you to assign state-specific rates to each code, as different states sometimes have different rates for the same job.
  • If you have different Experience Modification factors for different states, set your the rate for your Experience Modification factor to 100.

    Why? The manual Workers Compensation feature doesn't support multiple Experience Modification factors. Setting the rate for your Experience Modification factor to 100 allows you to use the Workers Compensation reports to calculate your subtotals in each state. You can then follow the instructions below to calculate your total Workers' Compensation premiums.

Calculating Workers' Compensation premiums for each state

  1. Open the Workers Compensation Summary report for a given time period.
  2. Modify the report by choosing the Workers Comp Code filter and then selecting all the codes that apply to a single state.
  3. In the filtered report, take the total in the WC Premium column and multiply it by the experience modification rate for the corresponding state. This gives you your adjusted (final) Workers' Compensation premium for that state for the given time period.

Paying Workers' Compensation Premiums

Pay your premiums using a payroll liability check, as you would if you were paying workers compensation in a single state. However, you might need to adjust the actual amount you owe, since QuickBooks won't multiply your subtotal by the experience modification factor in each of your states.

To figure out how much of an adjustment you should make to your Workers Compensation liability:

  1. Calculate your state-by-state premiums for a given time period.
  2. Total the final sums for each state.
  3. Compare the final amount to the amount for the Workers Compensation payroll item in the Pay Liabilities window for the given time period. The difference is the amount that needs to be adjusted.
  4. Follow the steps for adjusting payroll liabilities.

Track Workers' Compensation premiums on paychecks

Workers' Compensation premiums accrue automatically on paychecks when Workers Compensation (WC) codes are assigned to specific Earnings items. If an employee has a default WC code, that code appears automatically in the WC code column of the Earnings section. The WC code column appears in the Preview Paycheck window when the manual Workers Compensation feature is turned on.

If an employee doesn't have a WC code, or if their code varies depending the particular task they perform during a given pay period, you can assign Workers Compensation codes for individual earnings on a paycheck itself.

To track:

  1. In the Earnings section of the Preview Paycheck window, select the row of the Earnings item to which you want to assign a Workers Compensation code.
  2. Select the Workers Compensation code from the drop-down. If the code isn't set up in QuickBooks already, select Add New to create the new code.

Fill in weekly timesheets or enter a single activity

See Create timesheets and time data report for more information.

Manually add WC codes when creating paychecks

If an employee has a default Workers Compensation code applied, that code appears automatically in the WC Code column of the Earnings section. The WC Code column appears in the Preview Paycheck window when the manual Workers Compensation feature is turned on.

If an employee doesn't have a Workers Compensation code applied, or if their code varies depending on the particular task they perform during a given pay period, you can assign Workers Compensation codes for individual earnings directly to a paycheck.

To add WC codes directly to paychecks, complete the following steps:

  1. Open the Preview Paycheck window, and look at the Earnings section.
  2. Select the row of the Earnings item to which you want to assign a Workers Compensation code.
  3. Select the WC code column drop-down, then select the correct WC code for the work completed. If the code isn't set up in QuickBooks already, select Add New to create the new code.
  4. Once the correct WC code has been applied and all payment info has been added, select Save & Close.

How much do I owe?

How much Workers Compensation you owe depends on the arrangement you have with your insurance carrier. Some insurance carriers ask you to pay periodic payments of the actual amount of insurance you have accrued, based on wages paid or hours worked. Other carriers ask you to pay an estimated amount; then, at the end of the year, they perform a reconciliation to determine whether you've paid the appropriate amount, compared to the actual accruals. Payment schedules also vary. Some insurance companies ask you to pay every month. Others arrange a different schedule with you.

To find out how much you have accrued in actual Workers' Compensation premiums for a given time period, you can either run a Workers Compensation Summary Report or you can view the balance of your Workers' Compensation premiums in the Pay Liabilities window.

Note: Your reports and the amount in the Pay Liabilities window will be accurate and complete only if you set up Workers Compensation before you ran your payroll for the given time period.

Pay Workers' Compensation premiums

If you use the manual Workers Compensation feature, you must pay your Workers Compensation' premiums using Payroll Liability Checks in the Payroll Liabilities window or through the scheduled payments feature. Don't pay them using regular checks in the Write Checks window. Your Workers' Compensation premiums accrue as Payroll Liabilities with every paycheck you create. If you don't pay them using Payroll Liabilities checks, the liability account in which your Workers Compensation liabilities accrue will never be reduced, and your Payroll Liabilities balances reports will be incorrect.

To pay your Workers' Compensation premiums, follow the same steps you would to pay Payroll Liabilities. The payroll item you use is called Workers Compensation, unless you renamed it when you set up workers compensation.

Adjust Workers Compensation Liabilities

If you aren't using the manual Workers Compensation feature in the standard way, you might need to adjust your Workers Compensation liabilities. This usually happens when the manual Workers Compensation feature doesn't support your particular need. For example, QuickBooks doesn't track wage limits on Workers Compensation. If you live in a state that has such wage limits, you will want to adjust the liability calculations QuickBooks makes to produce your actual liability.

To adjust your Workers Compensation liabilities, follow the same steps that you would to adjust a payroll liability account.

Workers Compensation Summary

This report tells you how much Workers Compensation insurance you have accrued. The report includes subtotals for each Workers Compensation code you set up in QuickBooks.

The report also includes subtotals for employees whose default Workers Compensation code is Exempt and for Earnings that were not assigned a job code (this row is called No WC Code). QuickBooks doesn't include these subtotals in the final totals in the WC Premium and Adj. WC Premium columns.

To run this report, go to the Reports menu, then select Employees & Payroll > Workers Comp Summary.

Workers Compensation by Code and Employee report

This report breaks down the Workers Compensation accruals for each Workers Compensation code by employee. You can use information in this report to build a picture of each employee's real cost to your business.

The report also includes subtotals for employees whose default code is Exempt and for Earnings that were not assigned any code (this row is called No WC Code). QuickBooks doesn't include these subtotals in the final totals in the WC Premium and Adj. WC Premium columns.

To run this report, go to the Reports menu, then select Employees & Payroll > Workers Comp by Code & Employee.

Workers Compensation by Job Summary

This report shows you how much Workers' Compensation insurance premiums you accrued on each job or customer. For each job or customer, QuickBooks totals the Workers Compensation accrued on paycheck earnings items to which you assigned a job or customer.

To run this report, go to the Reports menu, then select Employees & Payroll > Workers Comp by Job Summary.

Workers Compensation Detail

This report gives you a transaction-by-transaction breakdown of Workers' Compensation premiums accrued for each Workers Compensation code. Use this report for troubleshooting Workers Compensation totals.

To run this report, go to the Reports menu, then select Employees & Payroll > Workers Comp Detail.

Workers compensation listing

This report shows each Workers Compensation code and its rate. If you entered a new rate for a code, and the rate hasn't started yet, the new rate and its start date appear in the Next Rate and Next Rate Effective Date columns.

To run this report, go to the Reports menu, then select Employees & Payroll > Workers Comp Listing.

You can also add or delete columns in this report. Select Customize Report, then go to the Display tab.  Put or remove checkmarks beside the appropriate columns, then select OK when you're done.

Track Workers Compensation insurance expiration dates for subcontractors

  1. When you add a new vendor, fill out the Work Comp Expires field on the Additional Info tab of the Vendor list. To see this field, you must have a valid payroll subscription and payroll must be turned on.
  2. Add the Work Comp Expires date to the Vendor Contact List report:
    1. Go to the Reports menu, then select Vendors & Payables > Vendor Contact List.
    2. Select Customize Report.
    3. In the Columns list on the Display tab, select the Work Comp Expires checkbox, along with any other items you'd like to see on your report.
    4. Select OK.

Workers Compensation by class on reports

  1. Go to the Lists menu, then select Payroll Item List.
  2. Double-click on the Workers Compensation item. This will bring up an Edit Payroll Item window.
  3. Select Next.
  4. To ensure that Workers Compensation will track by class, select Track Expenses By Job.
  5. Select Next, then Finish.

If you want to set up QuickBooks Desktop to calculate, track, and remit Washington L&I tax, see Set up a payroll item for Washington's Labor and Industries (L&I) tax for more information.

If you would like to set up pay-as-you-go Workers Compensation payments for your company file, use WCPS: Workers Comp Payment Service General Information.

Note:
  • Some Workers Compensation reports may include the Gross Wages column. This is the sum of all wages that are subject to Workers' Compensation insurance. Note that if you compare the Gross Wages in the Workers Compensation Summary Report to the Gross Wages in the Payroll Summary Report, they might not be the same amount.
  • The default range for these reports is last month. You can show Workers' Compensation premiums for a different date range by choosing another date range from the Date drop-down list.

Enter or edit the rate for a Workers Compensation code

Workers' Compensation insurance companies usually change the rates they charge for each Workers Compensation code on an annual basis. When you get your new rates from your insurance company, you can enter them into QuickBooks and tell the system when to start using the new rates.

  1. Go to the Employees menu, then select Workers Compensation > Workers Comp List.
  2. Select the code you want to update.
  3. Select Workers Comp Code, then choose Edit.
  4. In the New rate for this code field, enter the code's new rate.
  5. In the Start using rate on field, enter the date you want QuickBooks to start using the new rate.

    Note: If the date is after that payroll, QuickBooks Workers Comp reports will automatically update the numbers. However, it won't update individual paycheck data and you may need to make manual payroll liability adjustments.

Note:
  • Intuit does not have any information on codes for each state. This information can be obtained from your Workers Comp provider.
  • QuickBooks only allows you to assign 1 Workers Compensation code to each employee, which typically is their main line of work. If an employee needs an additional Workers Compensation code assigned to hours worked, you can add the code manually to the paycheck when you create it.

Enter or edit the Experience Modification factor

  1. Go to the Employees menu, then select Workers Compensation > Workers Comp List.
  2. Select Experience Modification, then Edit.
  3. Enter the new rate in the New Experience Modification Factor field.
    • If the Experience Modification factor is 1.25, then the rate should be 125%. This is a 25% increase in the Workers' Compensation premium. If the factor is .81, then the rate should be 81%. This is a 19% decrease in the Workers' Compensation premium.
    • Entering a date in the past for the Experience Modification has no effect on the payroll dated earlier than the current date.
    • QuickBooks can't track more than 1 Experience Modification factor at a time.
  4. Enter the date you want QuickBooks to start using the new rate in the Start using rate on field.

    Note: This date should come before the first payroll whose wages will be applied to the new rate. If the date is after that payroll, QuickBooks Workers Compensation reports will automatically update the numbers. However, it won't update individual paycheck data and you may need to make manual payroll liability adjustments.

Set up an employee's default Workers Compensation code

The only thing you need to do to set up an employee for Workers Compensation is to assign them a default Workers Compensation code, if they have one.

Note: If an employee is exempt from Workers' Compensation insurance, such as an owner, assign them the Exempt code.

  1. Go to the Workers' Comp tab of the employee's record.
  2. From the Assign Workers' Comp Code drop-down, choose a code. If the code isn't set up in QuickBooks already, select Add New to create the new code.

How do I exclude overtime premiums from my Workers' Compensation calculations?

Note: You must set the overtime premium preference before you begin running your payroll. Otherwise, your Workers' Compensation reports might be inaccurate.

  1. Go to the Edit menu, then select Preferences.
  2. Select Payroll & Employees from the list on the left, then go to the Company Preferences tab.
  3. Select Workers Compensation.
  4. Put check to the Track Workers Comp and Exclude overtime premium from Workers Comp calculation checkboxes.
  5. Select OK, then OK.

Why would I want to exclude overtime premiums from my workers compensation calculations?

Some insurance companies base their insurance premium calculations on your employees' base wages. This means that they don't charge you extra when an employee works overtime.

Example:

Let's say your employee Dan Miller earns $20 an hour straight time and $30 an hour overtime (or time-and-a-half). Say the Workers' Compensation insurance rate for Dan's workers compensation code is 5.50 per $100 (or 0.055). And let's say that last week, Dan worked 40 hours straight time and 10 hours overtime. His gross wages, then, were (40 x $20) + (10 x $30) = $800 + $300 = $1100.

  • If your insurance company doesn't exclude overtime premiums from its calculations, then you would owe 0.055 x $1100 in workers compensation insurance, or $60.50.
  • If your insurance company does exclude overtime premiums, then you owe less. Your insurance company charges you as if Dan had worked all 50 hours at straight time. So you would owe only $55.00, or 0.055 x $1000, where $1000 = (40 + 10) x $20 (the straight-time wage).

If you are not sure what your insurance company's policy is, either check with them or your accountant.

Can we track wage limits using the manual Workers Compensation feature?

No, the manual Workers Compensation feature doesn't track wage limits for those states where businesses are required to pay Workers Compensation insurance on wages only up to a certain limit. As long as the manual Workers Compensation feature is turned on, QuickBooks calculates Workers' Compensation premiums on all wages that have a Workers Compensation code associated with them.

My report looks wrong. How do I fix it?

If Check the following Solution Suggestions
You see any error. Did you use the Workers Compensation Wizard to set up the manual Workers Compensation feature? QuickBooks can't accurately calculate your Workers' Compensation premiums unless you set up the Workers Compensation feature before you run your payroll. If you didn't do this, go to the Workers Compensation Wizard and complete it now.
Wage amounts look wrong. Check your Workers Compensation preferences to make sure you excluded overtime premiums (if you were supposed to) or didn't (if you weren't supposed to). Set your Workers Compensation preferences to  exclude or include overtime premiums (as required by your workers compensation carrier) and rerun the report.
Does your workers compensation carrier require you to pay premiums on compensation other than hourly and salary wages, such as tips, housing allowances, or meals? QuickBooks doesn't support Workers Compensation tracking for these types of compensation. You will have to calculate premiums for these items manually.
The rate for a Workers Compensation code is incorrect. Check the Workers Comp List (go to the Employees menu, then select Workers Compensation > Workers Comp List) to find out whether you entered the correct rate for the code. Check also that you set the rate to go into effect on the correct date.
Your Experience Modification rate is missing from the Exp. Mod. column. Check the Workers Comp List (go to the Employees menu, then select Workers Compensation > Workers Comp List) to find out whether you set up your Experience Modification rate—and that you set it to go into effect on the correct date. You can't set up your Experience Modification Factor retroactively. If you forgot to set it up, take the total in the WC Premium column and multiply it by your Experience Modification Factor to get your Adjusted Workers Compensation Premium.
The Experience Modification rate in the Exp. Mod. column is wrong. Check the Workers Comp List (go to the Employees menu, then select Workers Compensation > Workers Comp List) to find out whether you entered the correct rate for your Experience Modification rate. Check also that you set it to go into effect on the correct date.

You can change the rate retroactively. The change doesn't affect individual paycheck transactions; however, it does update the following Workers Compensation reports: Workers Compensation Summary, Workers Compensation by Code and Employee, Workers Compensation by Job Summary, and Workers Compensation Detail.

If there's a difference between the totals on the reports and your liability totals (which are calculated based on paycheck data), you may have to make a manual adjustment.

Do you pay Workers' Compensation insurance premiums in more than 1 state? Follow the instructions for using the manual Workers Compensation feature when you pay insurance premiums in more than 1 state.

What if my Workers Compensation reports don't match the corresponding liabilities?

If you changed your Workers Compensation rate and specified the start date to affect paychecks that have already been processed, your Workers Compensation reports won't match your Workers' Compensation liability totals. That's because QuickBooks updates the reports, but doesn't update individual paycheck transactions. You need to do that manually.

To see the premium for each employee by paycheck, run the Workers Compensation Detail report:

  1. Go to the Reports menu, then select Employees & Payroll > Workers Comp Detail.
  2. Change the date range if necessary, then select Refresh.
  3. The report displays employee names, individual paychecks, and the premium calculated for each paycheck.

To see the premium calculated for a specific employee at the time the paycheck was created, run the Payroll Item Detail report:

  1. Go to the Reports menu, then select Employees & Payroll > Payroll Item Detail.
  2. Select Customize Report.
  3. Go to the Display tab, then change the date range of the report if necessary.
  4. Go to the Filters tab, then in the Filter list, select Payroll Item.
  5. From the Payroll Item drop-down, select Workers Compensation.
  6. Select OK. To see the detail behind any number on a report, select the number when you see the QuickZoom icon.

Compare the two reports to locate differences, then adjust the numbers to match as needed.

Does changing the Workers Compensation rate affect previously created paychecks?

When you modify a rate for a workers compensation code or for an experience modification factor, the change does not affect premiums that were calculated between the effective date of the change and today. This is because QuickBooks calculates Workers' Compensation premiums at the time the paycheck is created. Workers Comp reports are updated to reflect the change but individual paycheck transactions are not. You may find that your report totals and your liability totals don't match.

Example:

Let's say you create a paycheck for an employee and that employee has $1,000 in earnings. The rate of the Workers Compensation code assigned to those earnings is 6.73. When you create the paycheck, QuickBooks calculates the premium at the same time: 6.73 x 1,000, or 67.30. It stores that number and then includes it whenever you run a Workers Compensation report for the period that includes that paycheck.

If you later change the rate for that Workers Compensation code to 5.92 and you set the start date for that new rate to a date before the date of the paycheck, QuickBooks does not recalculate the Workers' Compensation premiums for that paycheck. Instead, the premium remains $67.30. To make the report totals and your liability totals balance, you need to make manual payroll liability adjustments.

  1. Go to the Reports menu, then select Employees & Payroll > Workers Comp Detail.
  2. Change the date range if necessary, then select Refresh.
  3. The report displays employee names, individual paychecks, and the premium calculated for each paycheck.

To see the premium calculated for a specific employee at the time the paycheck was created, run the Payroll Item Detail report:

  1. Go to the Reports menu, then select Employees & Payroll > Payroll Item Detail.
  2. Select Customize Report.
  3. Go to the Display tab, then change the date range of the report if necessary.
  4. Go to the Filters tab, then in the Filter list, select Payroll Item.
  5. From the Payroll Item drop-down, select Workers Compensation.
  6. Select OK. To see the detail behind any number on a report, select the number when you see the QuickZoom icon.

Compare the two reports to locate differences, then adjust the numbers to match as needed.

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