It’s Time to Update Your Salaries

Most group life and disability plans base premium and claims payments on employees’ salaries.  Employers have some latitude in how they define covered earnings, and it’s important that you understand how your contract is set up.  See a previous post on this topic at this link:

Here are two common ways to define covered income:

  • Last year’s W2
  • Current salary

Using last year’s W2 freezes income at last year’s amount for claims and premium amounts for each covered employee.  This definition makes administration easier because you don’t have to update salaries during the year, even as salaries change for employees.

This ease of administration comes with a cost, however.  If an employee gets a raise in pay, that increased salary is not covered until the next year, effectively creating a lag between actual pay and potential benefits paid.

If you use current salary, the claims amounts keep pace with salary changes, but it’s more difficult to administer with potential salary changes every month.

It’s pretty common for employers to forget to do their salary updates, so January 1 is a good time for a reminder.  Regardless whether you use current salary or last year’s W2 for your earnings definition, you need to do your salary updates in January.

If you have questions about how to structure your earnings definitions, feel free to call us at (866) 724-0008 or click the link below.




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