CSLB Contractor's Law & Business Practice Exam

Which of the following is not included when calculating unemployment and disability insurance taxes?

1. Bonuses

2. Wages

3. Overtime

4. Severance Pay

The correct answer is: Severance Pay

When calculating unemployment and disability insurance taxes, severance pay is not included as it is a one-time payment made to an employee upon termination of their employment, often as part of a severance package. Unlike regular wages, bonuses, and overtime, which are based on an employee's continuous earnings, severance pay does not constitute regular remuneration for services rendered. Unemployment and disability insurance taxes are primarily calculated on an employee's regular wages and earnings, which encompass bonuses and overtime, as these directly correlate to hours worked and job performance. Since severance pay is not tied to the employee's ongoing employment or their typical labor contributions, it is excluded from these tax calculations.