By Gregory Osorio, ARM, Osorio Insurance Agency
There is a problem lurking for many contractors, it became effective January 1, 2008 and is only now beginning to manifest itself in premium audits for Workers’ Compensation policies renewing January 1, 2009 and thereafter. It is a problem that few insurance companies or insurance brokers have notified their clients about, and even fewer have stressed the huge potential negative impact it will have on Workers’ Compensation policy premiums for many in the construction trades.
The “Dual Wage” issue is this ----- Currently if a construction trades employer is paying over the hourly wage set by the Workers’ Compensation Insurance Rating Bureau (WCIRB) and could prove it, then an employer would receive a substantially lower Workers’ Compensation rate per $100 of payroll. In 2008 the dollar hourly figure was approximately $24 an hour for many classification codes (plumbing & sheet metal are a good example), however it differs for various trades. The “net” was that if you paid the above and could prove it, you got the lower rate.
Now the game has changed and a whole lot of employers were never notified by either of the parties they depend on (carriers and brokers), and the stakes are ridiculous. Effective for policies effective January 1, 2008 (which is again now impacting policies renewing after January 1, 2009) it no longer matters if you can simply prove that you paid the higher wage ----- The only thing that matters now is if you maintain specific record keeping which the WCIRB has stated (copy below) AND can demonstrate that you are paying the higher wage. However, if you have not maintained adequate records according to the specific WCIRB standards, then it does not matter if you can prove in court that you were paying the higher wage (i.e. a union shop with a collective bargining agreement), the auditor will be forced to place you in the lower wage category and you will have to pay the higher rate per $100 of payroll. Ridiculous? Yes! Outrageous? Yes! But unfortunately also true.
Below is the new section of regulation taken directly from the WCIRB manual:
“For all employees, other than salaried employees, determination of the regular hourly wage must be supported by original time cards or time book entries for each employee indicating the operation performed, the time employee started and ended each work period throughout the workday, and the total hours worked each day.”
Now here comes the penalty for failing to adhere to all of the above (very next paragraph in the WCIRB manual):
“For all employees, other than salaried employees, the payroll for which an hourly wage determination cannot be reconciled to time cards or time book entries as specified above shall not be assigned to a classification that requires the regular hourly wage to equal or exceed a specified amount.”
What the above means in simple terms is that you will pay the dramatically higher premium for the lower wage class code, even if you were paying the higher wage to your employee ----- All of this solely because you did not maintain the new record keeping requirements.
To illustrate the enormous impact we did a “what if” scenario for one client paying $150,000 a year in Workers’ Compensation premiums, and the additional premium if they were penalized per the above new regulation was $89,000. Can you imagine the fury this would create if this happened to you? Well, it is going to happen to employers all across this state.
I personally attempted to address this with the WCIRB and pointed out how ridiculous and punitive it was, and how poorly (if at all) that it has been communicated. I even pointed out that many employers could prove in court that they had paid the higher wage (as stated above, through collective bargining agreement or other payroll records…). Frankly, it fell on deaf ears as the response I received from the WCIRB essentially stated that they went through a two year process with employer association groups participating (obviously they weren’t very good advocates) and they also stated that currently the Department of Industrial Relations already requires the same record keeping of employee hours worked ---- And so they did not believe that it was cumbersome or out of line to require the same. However, our small sampling revealed that very few construction employers were in compliance with this, that it has not been communicated to employers by anyone effectively, and penalties in the Workers’ Compensation arena due to this new regulation are so severe ------ That it my opinion makes it one of the most unfair and punitive regulations for employers that I have seen in my 30 plus years in the insurance industry.
If you would like a copy of the letter our office sent to the WCIRB, along with their response, and a copy of a recent article by the “Workers’ Compensation Executive” on this very subject (all of which will detail the above issue) please email me at address shown below and we will forward copies to you.
You can contact Gregory Osorio, ARM, at Osorio Insurance Agency, “World Class Solutions in Workers’ Compensation”, License # 0481334, Phone 800-932-2334, Email: greg@CompLeader.com, Website: www.CompLeader.com.
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