How to Calculate Workers Insurance Premiums

Many employers provide one or more types of insurance coverage as standard benefits for their workers. Such benefits can include medical insurance, vision insurance, dental insurance and life insurance. With any of these benefits, the employer must calculate and state clearly the total cost of premiums for each type of insurance and the portion, if any, which will be deducted from employee paychecks.

Things You'll Need

• Payroll and bookkeeping systems
• Insurance coverage plan for your workers

Instructions

Calculate Workers Insurance Premiums

1. Include the total monthly cost of each insurance benefit, the percentage to be deducted from each employee's paycheck and the specific details of the benefit in a written summary that you provide to your workers. This summary should be included in your personnel policy handbook, as well as any individual written offer letters that you may extend to new hires.

2. Apply such benefits and their costs consistently to your workers, with uniform rules governing the length of time that an employee must work before being covered, the percentage you will pay for an employee's individual coverage, the percentage you will pay for family coverage, and so forth.

3. Make a monthly expense entry for each individual employee's insurance premium, even if the insurer bills it to your company quarterly. This will provide an instant audit for the aggregate amount billed by the insurer and allow your company to track individual employee costs.

4. Calculate the employee's share of his insurance premium in accordance with your overall policies concerning that insurance benefit and deduct it regularly and evenly from the employee's paychecks.

5. Figure the amount to be deducted from each employee paycheck by multiplying the employee's monthly insurance premium by 12 and dividing the resulting product by the number of paychecks the employee receives in a year (52 for employees paid weekly, 26 for employees paid bi-weekly, etc.)

6. Express clearly, in your written policy, whether your employee insurance deductions are applied to the current month or the month just ended. Applying them to the current month may save you money if an employee leaves or is terminated abruptly.

7. Show a detailed breakdown of insurance deductions with pay period and year-to-date totals for each kind of insurance on each employee's pay stub.

Tips & Warnings

• Many insurers charge differing premiums to insure different employees based on their ages. Your benefit policy must reflect your decision, in consultation with your accountant, whether to reflect these differences individually in the amount you deduct from employee paychecks, or group all your employees together and apply the deduction percentages across the board.

• Don't discriminate! Establish a clear policy on the amounts that your employees will be charged through payroll deductions for single coverage and for coverage for children and partners, and apply it evenly and across the board.