IA MEDICAL INSURANCE OPT-OUT PAYMENTS TO BE INCLUDED IN AVERAGE WEEKLY WAGE CALCULATION

In Markley v. J. Rettenmaier USA LP, the Iowa Workers’ Compensation Commissioner affirmed a Deputy Commissioner’s determination that employer-provided medical insurance opt-out payments should be included in an injured employee’s average weekly wage calculation.

Section 85.36 of the Iowa Code provides that the basis of compensation for an employee’s injury is the employee’s weekly earnings at the time of his or her injury. Weekly earnings are defined as the gross salary, wages, or earnings to which the injured employee is entitled had the employee worked his or her customary hours. Depending upon the type of earnings and employment, weekly earnings are then calculated to determine an employee’s average weekly wage.

In Markley, the employer offered its employees an opportunity to opt-out of their health insurance plan. If employees opted-out, they would receive cash payments in lieu of medical insurance, presumably because this let the employer save money on health insurance premiums. The injured employee chose not to participate in the employer’s insurance plan, and, accordingly, received the opt-out payment in addition to his regular earnings in every paycheck.

The employer argued that the opt-out payment should be characterized as a “fringe benefit,” similar to employer payments to a 401(k), and should not be included as part of the employee’s average weekly wage.

The Deputy Commissioner determined that a medical insurance opt-out payment represents compensation rather than a “fringe benefit.” The injured employee regularly received this bonus-like payment in his paycheck and was allowed to spend it freely without stipulations. Essentially, the employer offered the employee higher wages in order to forego the benefit of medical insurance.

Therefore, the Deputy Commissioner held that the employee’s medical insurance opt-out payment should be included in the employee’s weekly earnings and subsequent average weekly wage calculation.

The Commissioner later affirmed the Deputy’s findings.

This post was drafted by Faith Kowalski, a law clerk at Baylor Evnen. If you have questions regarding the calculation of an average weekly wage, please call Paul Barta or Micah Hawker-Boehnke at 402-475-1075.