Wage Inflation’s Impact On Workers’ Compensation

Author, Casey Craig, Account Executive, Rancho Mesa Insurance Services, Inc.

Following up on a great article by fellow construction team member Kevin Howard, about anticipated wage threshold increases coming in 2022, I wanted to highlight the building problems resulting from substantial hourly wage increases.

I specialize in painting, drywall and plastering contractors and have been asking my clients over the past few months about the health of their business and any new challenges. The most common answer: there is a substantial amount of work to bid on, but a labor shortage limits the possibility of growth.

Paying an employee higher wages creates new issues. Employees tend to inform co-workers when they get a raise. Employees may also try to leverage another company’s higher wage into a raise. The combination of a labor shortage and overpaying employees may result in hyperinflation, leading these employees to believe their value has skyrocketed.

Tying back into Kevin’s article, it is easy to see why these thresholds need to be increased. The wage threshold is meant to separate historically safer employees from newer employees who are less safety conscious. These increases in payroll are pushing less skilled employees into the higher wage category, resulting very likely in higher claim frequency as they are historically less experienced and safety conscious on the jobsite. This is leading to a smaller gap in workers’ compensation rates between the above and below class codes for each industry.

For example, a painter had a separation of 56% from 5474 to 5482 (painters making above or below $28) for their 2021 renewal. For 2022, they are only looking at a 46% difference. From the carrier perspective, more losses are expected in the 5482 (above $28) than the previous year, leading to a rate increase in that class code. I wish I could say that this was industry specific, but from conversations with multiple underwriters, most industries are dealing with these same employment issues and have struggled to find meaningful solutions.

It is possible these dual wage threshold increases will help restore balance by bringing the less skilled employees back into the proper class code, securing the lower rates in the over class code. Employers have shared that these threshold increases are hurting them, but should assist with workers’ comp savings for the truly elite seasoned workers. Carriers have these thresholds to help you differentiate experience from inexperience.

This is a developing issue that we are trying to stay ahead of. The time is now to meet with someone who specializes in your industry and help you formulate a strategy for 2022 to mitigate these impacts and improve your profitably. To schedule a time to talk or meet with me or you can call me directly at 619-438-6900.

Timely Reporting of Workers’ Compensation Claims Lower Overall Costs

Author, Jack Marrs, Associate Account Executive, Rancho Mesa Insurance Services, Inc.

Leading into 2022, it is important for employers to examine their workplace injury reporting practices. Specifically, employers should report all injuries including medical-only workplace injuries to their workers’ compensation insurance company. Best practices dictate all claims should be reported within the first 24 hours in order to improve treatment to the injured worker and reduce the overall cost of the claim to the employer.

A recent conversation with an underwriting manager highlighted the fact that some employers are choosing to pay for occupational clinic visits rather than filing a claim, assuming that small medical-only claims will negatively impact the Experience Modification Factor (X-mod) and ensuing workers’ compensation premiums. However, in actuality claims of $250 or less do not impact the X-mod. Not only are employers legally required to report workplace injuries, but those small claims can easily turn into something bigger, if not reported in a timely manner. Further, the reporting of all incidences can assist a company in identifying trends and root causes thereby allowing for proactive measure to be taken. Rancho Mesa’s proprietary Key Performance Indicator (KPI) dashboard helps track these trends and compare a company’s performance to that of their industry. Request a KPI dashboard for your company.  

Why then does reporting lag result in higher claim costs? An insurance carrier’s ability to investigate a claim, determine compensability, and identify fraud may be hindered as details of the incident fade, witnesses may no longer be available or key evidence may not be preserved. According to Liberty Mutual, a 29-day delay in reporting an injury can lead to a 33% increase in lost time, 52% higher average claim cost, and 152% increase in litigation rates. This makes sense when one considers that a delay in seeking treatment could cause an employee’s condition to worsen, extending recovery time and temporary disability payments.

Lastly, an employer paying a medical bill will pay much more than a workers’ compensation carrier would pay for that same bill as insurance companies negotiate a reduced fee schedule for occupational injuries. Bottom line, failure to report workplace incidents in a timely manner can put any organization and its employees at risk for no benefit. Contact Rancho Mesa to learn more about our Risk Management Center and how our free trainings and webinars can improve your reporting practices.

2022 Construction Dual Wage Thresholds - An Early Look

Author, Kevin Howard, Account Executive, Rancho Mesa Insurance Services, Inc.

There are 16 construction workers’ compensation class code pairs in California, each set up as dual wage classifications. The purpose of these “split” class codes allows the Workers’ Compensation Insurance Rating Bureau (WCIRB) and California insurers to better predict future risk and underwrite with more accuracy.

To illustrate the dual wage threshold, consider a seasoned laborer with years of safety training, exposure awareness, and familiarity with jobsite protocol. This employee is going to be less of a safety risk compared to an apprentice who is still learning his or her trade, the safety techniques and all of the skill associated with a trade. As one might imagine, statistics consistently show a much higher probability of an injury occurring with an apprentice versus a seasoned veteran or journeymen. So, having a dual wage threshold allows carriers to generate pricing based on the employees’ experience and likelihood of having an injury.

Exploring how this can directly impact rates and pricing, the 2021 roofing dual wage class codes of 5552 and 5553 is a great example.

Class code 5552 is defined as roofers who make less than $27 per hour. The average California worker’s compensation insurance base rate for this class code is $40 per $100 of payroll. Class code 5553 includes roofers who make $27 or more per hour. This class code’s average California workers’ compensation insurance base rate is $20 per $100 of payroll. In this example, the workers’ compensation premium base rate is half the cost for a more experienced employee over someone with less experience.

It is crucial for any roofing contractor to be mindful of this wage threshold data knowing that the delta in the 2022 recommended increase represents a staggering 61% gap between the two base rates.

Additionally, the WCIRB has continued to increase wage thresholds. This is to keep up with inflation of the US dollar, the increase in minimum wage and the demand for labor, among other factors.

Dual Wage Classification Thresholds by Year

Shown below are the wage thresholds for all dual wage classifications. For information about these classifications, see the California Workers' Compensation Uniform Statistical Reporting Plan—1995, effective September 1, 2021.

Classifications
Year	5027	5140	5183	5185	5201	5403	5446	5467	5474	5484	5538	5552	5632	6218	6307	6315
	5028	5190	5187	5186	5205	5432	5547	5470	5482	5485	5542	5553	5633	6620	6308	6316
9/1/2022	$32	$34	$31	$32	$32	$39	$38	$36	$31	$36	$29	$29	$39	$39	$39	$39
9/1/2021	$28	$32	$28	$29	$28	$35	$36	$33	$28	$32	$27	$27	$35	$34	$34	$34
1/1/2021	$28	$32	$28	$29	$28	$35	$36	$33	$28	$32	$27	$27	$35	$34	$34	$34
1/1/2020	$28	$32	$28	$29	$28	$35	$36	$33	$28	$32	$27	$27	$35	$34	$34	$34
1/1/2019	$27	$32	$26	$27	$25	$32	$34	$32	$26	$29	$27	$25	$32	$31	$31	$31
1/1/2018	$27	$32	$26	$27	$25	$32	$34	$31	$26	$29	$27	$25	$32	$31	$31	$31
1/1/2017	$27	$30	$26	$27	$24	$30	$33	$31	$24	$27	$27	$23	$30	$30	$30	$30

© 2021 Workers' Compensation Insurance Rating Bureau of California. All Rights Reserved.

WCIRB’s 2022 RECOMMENDATION:

The Bureau is considering raising the hourly wage threshold for all 16 dual wage classification pairs with some codes seeing as much as a $5.00 increase. The average delta between the lower advisory rate and higher advisory rate is 48%.

 Proposed Dual Wage Threshold Increases

Dual Wage Classifications	Existing Threshold	Proposed Increase	Proposed Threshold	Low Wage Advisory Rate	High Wage Advisory Rate	% Difference From Low Wage Rate
5027/5028 Masonry	$28	$4	$32	$8.18	$4.21	-48.50%
5190/5140 Electrical Wiring	$32	$2	$34	$3.76	$1.45	-61.40%
5183/5187 Plumbing	$28	$3	$31	$5.31	$2.36	-55.60%
5185/5186 Automatic Sprinkler	$29	$3	$32	$4.57	$1.00	-57.30%
5201/5205 Concrete Work	$28	$4	$32	$6.64	$1.95	-36.30%
5403/5432 Carpentry	$35	$4	$39	$10.03	$4.23	-55.10%
5446/5447 Wallboard Installation	$36	$2	$38	$5.42	$4.50	-55.10%
5467/5470 Glaziers	$33	$3	$36	$7.62	$2.65	-59.30%
5474/5482 Painting Waterproofing	$28	$3	$31	$8.09	$3.10	-46.40%
5484/5485 Plastering or Stucco	$32	$4	$36	$9.98	$4.34	-37.40%
5538/5542 Sheet Metal Work	$27	$2	$29	$5.07	$2.52	-50.30%
5552/5553 Roofing	$27	$2	$29	$21.05	$8.14	-61.30%
5632/5633 Steel Framing	$35	$4	$39	$10.03	$4.50	-55.10%
6218/6220 Grading/Land Leveling	$34	$5	$39	$5.10	$2.93	-42.50%
6307/6308 Sewer Construction	$34	$5	$39	$6.98	$2.84	-59.30%
6315/6316 Water/Gas Mains	$34	$5	$39	$4.18	$3.70	-11.50%

This recommendation, if approved by the insurance commissioner, would become effective September 1, 2022.

With the continuing labor shortage in the construction arena, employers have been doing everything possible to retain employees by offering richer benefits plans, pay increases and merit bonuses, when applicable. These recommended wage classification increases could potentially push employers to extend additional pay raises to employees in an effort to minimize workers’ compensation premiums.

It is best for contractors who utilize any of the 16 dual wage classification pairs to be aware of the potential increases and to do the math to see if it makes sense to consider raises prior to your 2022-2023 September 1st workers’ compensation renewal.

Rancho Mesa predicts that this info will become a major factor in payroll decisions based on overhead cost management and recommend this as a topic for discussion early so that our clients, prospects and listeners can prepare.

To discuss how the proposed dual wage threshold increases may affect your business, contact me at (619) 438-6874 or khoward@ranchomesa.com.

California Workers’ Compensation Dual Wage Thresholds Increases Approved for Construction Classes in 2020 – Bottom Line Hit Hard

Originally published May 23, 2019.
Updated September 19, 2019.

Author, Sam Clayton, Vice President, Construction Group, Rancho Mesa Insurance Services, Inc.

In an effort to keep you informed, so you can begin budgeting for 2020, we want to let you know of the approved changes in the dual wage classifications effective January 1, 2020.

The increases range from $1.00 to $3.00 per hour, to keep the thresholds in line with inflation. However these changes will have an immediate effect on your bottom line. 

In the classes of business that are facing a $3 increase, this equates to a low of 9.3% to a high of 10.3%. See the chart below for the actual approved changes. Not only does this have an impact on wages, payroll taxes, and your bottom line, it may also have an impact on your workers compensation premiums. If you find yourself in a situation where the wage increase is not practical, this will push those employees into the under classification which will have a substantially higher workers compensation rate. In either case, proactive planning will be required so you’re not caught unprepared.

Following are the individual classes and approved changes:

Dual Wage Thresholds

Classification	Current Threshold	2020 Threshold	Threshold Difference	Last Changed
5027/5028 Masonry	$27	$28	$1	2013
5190/5140 Electrical	$32	$32	$0	2018
5183/5187 Plumbing/Heating/Refrigeration	$26	$28	$2	2014
5185-5186 Fire Sprinkler	$27	$29	$2	2009
5201-5205 Concrete or Cement Work	$25	$28	$3	2018
5403/5432 Carpentry	$32	$35	$3	2018
5446/5447 Wallboard Application	$34	$36	$2	2018
5467/5470 Glaizers	$32	$33	$1	2019
5474/5482 Painting/Waterproofing	$26	$28	$2	2018
5484/5485 Plastering or Stucco Work	$29	$32	$3	2018
5538/5542 Sheet Metal Work	$27	$27	$0	2014
5552/5553 Roofing	$25	$27	$2	2018
5632/5633 Steel Framing	$32	$35	$3	2018
6218/6220 Excavation/Grading	$31	$34	$3	2018
6307/6308 Sewer Construction	$31	$34	$3	2018
6315/6316 Water/Gas Mains	$31	$34	$3	2018

_{Table Source: WCIRB.com.}

In an effort to help control workers compensation costs, we have developed several proprietary programs including the RM365 Advantage Safety Star Program™ and RM365 StatTrac™ that can help control these increases. Please reach out to me at sclayton@ranchomesa.com to ask any questions about the above or to learn more about our proprietary programs.

Workers' Compensation Dual Wage Thresholds Increases for Construction Classes in 2018

Author David J. Garcia, C.R.I.S., A.A.I., President Rancho Mesa Insurance Services, Inc.

Updated September 15, 2017 The Workers’ Compensation Insurance Rating Bureau has confirmed the following increases for the 2018 dual wage construction classifications.

Originally published on May 12, 2017.

In an effort to keep you informed, so that you can begin to plan your 2018 budget, we wanted to let you know of a potential change in the dual wage classes, for many but not all, the dual wage construction class codes.

The Workers’ Compensation Insurance Rating Bureau is proposing increases in the wage threshold for ten different construction industry dual wage classifications and is likely to recommend an increase in an eleventh, by the time it releases its 2018 regulatory filing, next month. The proposed increases range from $1.00 to $2.00 per hour, to keep the thresholds in line with wage inflation. See the chart below for the actual changes.

Dual Wage Thresholds

Classification	Current Threshold	Recommended Threshold	Threshold Difference	Last Changed
5027/5028 Masonry	$27	$27	$0	2013
5190/5140 Electrical Wiring	$30	$32	$2	2014
5183/5187 Plumbing	$26	$26	$0	2014
5185-5186 Automatic Sprinkler Installation	$27	$27	$0	2009
5201-5205 Concrete or Cement Work	$24	$25	$1	2009
5403/5432 Carpentry	$30	$32	$2	2016
5446/5447 Wallboard Application	$33	$34	$1	2016
5467/5470 Glaizers	$31	$31/further study	$1	2016
5474/5482 Painting/Waterproofing	$24	$26	$2	2009
5484/5485 Plastering or Stucco Work	$27	$29	$2	2014
5538/5542 Sheet Metal Work	$27	$27	$2	2009
5552/5553 Roofing	$23	$25	$2	2009
5632/5633 Steel Framing	$30	$31	$1	2016
6218/6220 Excavation/Grading/Land Leveling	$30	$31	$1	2014
6307/6308 Sewer Construction	$30	$31	$2	2014
6315/6316 Water/Gas Mains	$30	$31	$2	2014

_{Table Source: WCIRB.com.}

Rancho Mesa will keep you informed should the proposed 2018 change go into effect.  If you have any questions, please give us a call at (619) 937-0164.

Your Rancho Mesa Team - RM365 Advantage