ARE YOU due for a workers’ compensation premium audit?
Audits are how insurance rates are determined, and it’s possible that an audit will uncover information that can actually save you money — or not if you’ve hired additional staff and haven’t notified your insurer.
In any case, it pays to be prepared and you can do so with the following tips:

Note staffing changes – Let us know when there are changes in your staffing, payroll, or areas of operation. This is important not just at audit time, but all the time. Your rates are based on variable rating information, including the number of employees, job classifications, and the states in which you operate. Updated information results in more accurate premium assessments.

Get your records ready – Your auditor will need to see records such as federal and state tax returns, ledgers, checkbooks, contracts, and employee or contractor tax documents. If you prepare your records in advance, you’ll speed up the audit process.

Gather all payroll information – Make sure you break out various types of compensation in your records. For example, to set your premium, we consider pay but not contributions to employee benefits packages and other perks, so it’s important to make sure your records are clear on the various types of compensation. Also, make sure overtime pay is clearly defined since it’s classified as regular pay for workers’ compensation insurance purposes.

Ensure that contractors have their own insurance – This is important not only from an audit standpoint but from a liability perspective as well. If an uninsured contractor has an accident
while performing work on your behalf, you can be held liable. If an audit identifies contractors for whom you don’t have certificates of coverage, you can be charged for their premiums.

Remain on hand to answer questions – As your auditor reviews your material, he or she may have questions or need additional data. If you are available to provide answers, your audit will be completed more quickly.

The takeaway

By following these tips, you’ll be more prepared for your workers’ compensation premium audit. A fast, efficient audit process can save time for both you and your auditor, so it pays to be prepared.

CALIFORNIA INSURANCE Commissioner Ricardo Lara on May 31 approved all of the Workers’ Compensation Insurance Rating Bureau’s recommended changes to class codes for some electronics manufacturing sectors, as well as increases to the wage thresholds for construction industry dual classifications.
The following changes will take effect for policies incepting on or after Sept. 1, 2024:

Electronics manufacturing industry

One of the changes links two more classes to the 8874 companion classification, which was created in September 2022 to cover certain low-risk classes in the electronics industry group.
Currently, 8874 is a companion class that covers payroll for lower-risk jobs in hardware and software design and development, computer-aided design, clerical and outside sales operations for two electronics industry classes:
• 3681 (manufacturing operations for electronic
instruments, computer peripherals, telecommunications
equipment), and
• 4112 (integrated circuit and semiconductor wafer manufacturing).

Starting Sept. 1, similar low-risk white-collar personnel currently assigned to class 3572 (medical instrument manufacturing) and 3682 (non-electric instrument manufacturing) will be linked to the 8874 companion class code.

Dual-wage increases

The thresholds that separate high- and low-wage earners in 16 dual-wage construction classes are also increasing Sept. 1.
These class codes have vastly different pure premium rates for workers above and below a certain threshold as the lower-wage workers (often who are less experienced) have historically filed more workers’ comp claims.
Rates for lower-wage workers are often double the rates for higher-wage workers.

THE WORKERS’ Compensation Insurance Rating Bureau of California will recommend changes to class codes for some electronics manufacturing sectors, as well as increases to the wage thresholds for construction industry dual classifications.
The move comes after the Rating Bureau’s governing committee unanimously approved proposed changes, which will be sent in March to the state insurance commissioner for approval. If approved, the changes will take effect Sept. 1, 2024.
Here’s what’s on tap:

Dual-wage increases

The Rating Bureau will also recommend increasing the thresholds that separate high- and low-wage earners in 16 dual-wage construction classes as shown below. These class codes have vastly different pure premium rates for workers above and below a certain threshold. Lowerwage workers have historically filed more workers’ comp claims. Rates for lower-wage workers are often double the rates for higher-wage workers.

Electronics manufacturing

Another proposed change would link two more classes to the 8874 companion classification, which was created in September 2022 to cover certain low-risk classes in the electronics industry group.
Currently, 8874 is a companion class that covers payroll for lower-risk jobs in hardware and software design and development, computer-aided design, clerical and outside sales operations for
two classes:

• 3681 (manufacturing operations for electronic instruments, computer peripherals, telecommunications equipment), and
• 4112 (integrated circuit and semiconductor wafer manufacturing).

The new proposal would move to 8874 similar low-risk white-collar personnel currently assigned to class 3572 (medical instrument manufacturing) and 3682 (non-electric instrument manufacturing).

The Bureau is also recommending merging class code 3070 (computer memory disk manufacturing) with 3681(2) (computer or computer peripheral equipment manufacturing). If this recommendation is okayed, the higher pure premium rate of $0.46 per $100 of payroll for class code 3681 will apply to the new combined code.

Class 3070 currently has a pure premium rate of $0.25 per $100 of payroll and the new rate would be phased in at 25% per year until class 3070 is eliminated and all employers are moved to class 3681.

THE CALIFORNIA Workers’ Compensation Uniform Statistical Reporting Plan requires that employers report small, medical-only first-aid claims to their insurance carrier.

 

Many employers fail to report these claims as they consider them too small since the worker doesn’t lose any time from work and they don’t have to go to a doctor. Under Rating Bureau rules, employers are required to report the cost of all claims for which any medical care is provided and medical costs are incurred — including those involving first aid treatment — even if the insurer did not make the payment.
The term “small medical-only claim” is also used to refer to first aid claims.
For workers’ comp purposes, that also means that the injured worker did not miss work because of the injury. Besides these rules, there is a very good reason for reporting these claims because what starts as a first aid claim can develop into a larger claim over time. At that point, if you never reported the claim in the first place, coverage issues may arise.

Additionally, any physician attending any injured employee must send copies of the Doctor’s First Report of Occupational Injury or Illness to the workers’ compensation insurance carrier or employer within five days of the initial examination. The insurer or employer must submit the physician’s report to the Department of Industrial Relations (DIR) within five days of receipt.
Penalties for non-compliance Any employer or physician who fails to comply with the submission of the Doctor’s First Report for first aid claims may be assessed a civil penalty of not less than $50 nor more than $200 by the DIR if a pattern or practice of violations or a willful violation is found.

FIRST AID CLAIM EXAMPLES
• Abrasions and cuts that require cleaning, flushing, or soaking.
• Using hot or cold therapy for a muscle injury.
• Drilling a fingernail to relieve pressure, or draining fluid from a blister.
• Removing foreign bodies from the eye using only irrigation or a cotton swab.
• Removing splinters or foreign material from areas other than the eye by irrigation, tweezers, cotton swabs, or other simple means.

CALIFORNIA INSURANCE Commissioner Ricardo Lara has issued an order that cut the average advisory workers’ compensation benchmark rate across all classes by 2.6%, starting Sept. 1.

The benchmark rate, also known as the pure premium rate, is a baseline that covers just the cost of claims and claims adjusting, but not other overhead like rents, underwriting costs, and provisions for profit.

The rate is advisory, and insurers can use it as a guidepost for pricing their individual policies. Individual premiums that employers pay will depend on a number of factors, including the pure premium rate, the carrier’s own pricing methodology, and the employer’s claims and claims cost history, location, and industry.

Why the rate is falling

The insurance commissioner’s decision cuts the average published pure premium rate to $1.46 per every $100 of payroll, compared to the current $1.50.

Despite the average rate decrease of 2.6%, individual class codes may see swings as much as plus or minus 25%. Several factors are driving the lower rate decision:

• Slowing claims cost inflation
• Falling frequency of claims
• Lower overall claims costs
• Stable medical costs
• Fewer COVID-19 claims
• Lower claims-adjusting costs.

What insurers are doing

The most recently available industry average level of pure premium rates filed by insurers with the Department of Insurance is $1.71 per $100 of payroll as of Jan. 1, 2023, which is about 14.6% higher than the current published rate of $1.50. In 2022, carriers were charging $1.68 on average.

While the workers’ compensation market remains competitive and rates continue hovering around record lows, the final rate any employer will pay will depend on several factors beyond the pure premium rate. Some employers may see rate increases instead.

Factors that can influence the prices include the employer’s:

• Industry.
• Geographical location (employers in Southern California, for example, face a unique claims environment that results in a surcharge).
• Individual claims experience.

If you have staff who work remotely, you’ll want to pay attention to changes that are coming to the workers’ compensation class code you use for them.
Starting Sept. 1, California’s telecommuter class code will finally get its own pure premium rate, that is lower than what’s currently being charged.
Since many people started working remotely after the COVID-19 pandemic began in 2020, the Workers’ Compensation Insurance Rating Bureau created a new telecommuter class code (8871) and tethered its pure premium advisory rate to the 8810 clerical classification for easier administration.
Now, under the Rating Bureau’s workers’ compensation regulatory filing which was adopted by the California Department of Insurance on May 25, code 8871 will receive its own rate, separate from the clerical rate. In fact, the new telecommuter rate will be 25% lower than the clerical rate due to the former’s lower losses and higher average payroll.
If you have remote workers, you’ll want to ensure they are in the telecommuter class code to enjoy the lower premium.

New X-Mod threshold

The approval of the filing also increases the workers’ comp premium threshold for experience rating (being eligible for an X-Mod) to $10,200 from $9,200 to account for wage inflation.

Restaurant classification split

Other changes include splitting the 9079 restaurant classification into six new codes (see box below), effective Sept. 1, 2024.
While there will be six codes, they will still be combined for rate-making purposes until the Rating Bureau collects a few years of data from the new codes, so that it can set individual rates
for each of them.

A slew of new laws and regulations that will affect California businesses are taking effect for 2023.

Last year was a busy one, with ground-breaking new laws on employee pay disclosures, a law prohibiting discrimination against cannabis-using employees and another expanding the circumstances when employees can take leave to care for a loved one. The following are the top 10 laws and regulations that employers in the Golden State need to stay on top of.

1.  Pay disclosure

This sweeping law in part requires more disclosure of pay information by employers. Under current law, employers are required to provide the pay scale for a position upon reasonable request by a job applicant. SB 1162 goes a step further by:

• Requiring employers, upon request by a current employee, to provide the pay scale of the position they are employed in.
• Requiring employers with 15 or more workers to include pay scale in any job postings for open positions.
• Requiring employers to maintain records of job titles and wage rate history for each employee while employed for the company, as well as three years after their employment ceases.

Note: The law defines “pay scale” as the salary or hourly wage range that the employer “reasonably expects” to pay for the position. Penalties range from $100 to $10,000 per violation. This law took effect Jan. 1, 2023.

 

 2.  State of emergency and staff

This new law, SB 1044, bars an employer, in the event of a state of emergency or emergency condition, from taking or threatening adverse action against workers who refuse to report to, or leave, a workplace because they feel unsafe. “Emergency condition” is defined as:

• Conditions of disaster or extreme peril to the safety of persons or property caused by natural forces or a criminal act.
• An order to evacuate a workplace, worksite or worker’s home, or the school of a worker’s child due to a natural disaster or a criminal act.

SB 1044 also bars employers from preventing employees from using their mobile phones to seek emergency assistance, assess the safety of the situation or communicate with another person to confirm their safety. The law, which took effect Jan. 1, 2023, does not cover first responders and health care workers.

 

3. Cannabis use and discrimination

This law bars employers from discriminating in hiring, termination or other conditions of employment based on employees using cannabis while off duty. The bill’s author says the legislation is necessary because THC (tetrahydrocannabinol), the active ingredient in marijuana, can stay in a person’s system after they are no longer impaired. As a result, drug testing may detect THC in an employee’s system even if they used it weeks earlier and it is having no effect on their job performance. AB 2188 does not require employers to permit employees to be high while working. The bill would exempt construction trade employees and would not preempt state or federal laws that require employees to submit to drug testing. This law takes effect Jan. 1, 2024.

4.  Leaves of absence

The California Family Rights Act and the state’s paid sick leave law allow employees to take leave to care for a family member, defined as a spouse, registered domestic partner, child, parent, parent-in-law, grandparent, grandchild or sibling. The definition has been expanded to include “any individual related by blood or whose association with the employee is equivalent of a family relationship.”

5.  Contractor workers’ comp

Starting July 1, the following contractors must carry workers’ compensation coverage regardless of if they have employees or not:

• Concrete (C-8 license)
• Heating and air conditioning (C-20)
• Asbestos abatement (C-22), and
• Tree service (D-49).

Starting Jan. 1, 2026, all licensed contractors must have coverage.

6.  OSHA citation postings

Under current law, employers that receive citations and orders from OSHA are required to post them in or near the place the violation occurred, in order to warn employees about a potential hazard. Starting Jan. 1, 2023, they must post the notice not only in English, but also: Spanish, Chinese (Cantonese, Mandarin), Vietnamese, Tagalog, Korean, Armenian and Punjabi.

7.  Permanent COVID standard

Cal/OSHA has a permanent COVID-19 prevention standard that will sunset in 2024. The new standard, which replaces the temporary emergency standard the agency had implemented, should provide more certainty for prevention procedures and practices. Here are the main takeaways:

• Employers are no longer required to pay employees while they are excluded from work due to COVID-19, or to screen employees daily.
• Employers must still notify and provide paid testing to employees who had a close contact in the workplace.
• Employers can now incorporate written COVID-19 procedures into their Injury and Illness Prevention Programs.

8.  CalSavers expanded

SB 1126 requires any person or entity with at least one employee to either provide them with access to a retirement program like a 401(k) plan or enroll them in the state-run CalSavers program. Prior to this new law only companies with five or more employees that do not offer a retirement plan are required to enroll their workers in CalSavers.

9.  Bereavement leave

Employers with five or more workers are required to provide up to five days of bereavement leave upon the death of a family member, under a new law starting in 2023. This leave may be unpaid, but the law allows workers to use existing paid leave available to them, such as accrued vacation days, paid time off or sick leave. Employers are authorized to require documentation to support the request for leave.

10.  PFL wage replacement

This law was passed last year but does not take effect until 2025. Existing California law allows employees to apply for Paid Family Leave and State Disability Insurance, both of which provide partial wage replacement benefits when employees take time off work for various reasons under the California Family Rights Act. Starting in 2025, low-wage earners (those who earn up to 70% of the state average quarterly wage) will be eligible for a higher percentage of their regular wages under the state’s PFL and SDI benefit programs.

AS INFLATION drives up salaries in all sectors, the workers’ compensation wage thresholds for construction dual class codes have increased in California as of Sept. 1, 2022.
State Insurance Commissioner Ricardo Lara in July approved the recommendation by the Workers’ Compensation Insurance Rating Bureau to increase the wage thresholds for highwage workers.
The new rates apply to workers’ comp policies that incept on or after Sept. 1.
In these dual class codes, workers’ compensation rates are different for workers above and below the wage threshold.
Rates are lower for workers whose hourly pay is above the threshold as statistics have shown higher-paid workers in these fields have fewer workplace injuries than those who are paid less.
Often the difference in premium rate between the workers who fall above and below the threshold can be significant.
Opposite are the new thresholds for each class code, that are now in effect.

THE WORKERS’ Compensation Insurance Rating Bureau of California is recommending that advisory benchmark workers’ compensation rates increase an average of 7.6% starting Sept. 1.
The proposal comes as the economy heats up and workplace injuries increase, all while COVID-19 workers’ compensation claims continue growing in number. The recommendation stilll needs to be approved by Insurance Commissioner Ricardo Lara, who last year rejected a proposed rate hike and instead ordered a cut.
However, because the benchmark rates – also known as the pure premium rate – are advisory only, insurers are free to price as they feel fit so the full effects will vary from employer to employer and some may see rate decreases.

What’s happening

The Rating Bureau says there are number of factors that are contributing to the increasing rates, including:
• An overall claims costs increase,
• Expected increases in the frequency of workplace injuries and claims,
• A rise in claims adjusting costs,
• Wage increases (part of workers’ comp includes replacement of a portion of wages via temporary and permanent disability payments), and
• Expected future costs of COVID-19 workers’ compensation claims.

 

Since the pandemic started, insurers have been barred from considering COVID-19 workers’ comp claims when calculating an employer’s claims history.
But that exemption will come to an end on Sept. 1. So, the WCIRB is including a 0.5 percentage point provision for the projected costs of future COVID-19 claims in the coming year.

The effects of wage hikes are also expected to increase claims costs. Payouts for lost wages while sick workers recuperate are expected to rise more than 11% by 2024.
Medical costs per claim are projected to increase about 6.5% from $29,896 as of Dec. 31, 2021, to $31,847 at year-end 2024.

The next step

The WCIRB has submitted the proposal to the Department of Insurance, which will hold a hearing on June 14, during which actuaries representing employers and labor will make counterproposals, which are usually lower than the bureau’s. After that, the state insurance commissioner can approve the proposal or reject it and order his own rate increase or decrease. Last year the WCIRB proposed a 2.7% hike, and Lara rejected it and instead ordered a decrease of 3.3%.

And remember: A number of factors go into calculating your insurance rate,
including your industry, your history of claims and your geographic location.

THE WORKERS’ Compensation Insurance Rating Bureau’s two temporary payroll reporting rules to reflect changes brought on by the COVID-19 pandemic stay-at-home orders have sunsetted.

The move came after Gov. Gavin Newsom’s June 9 executive order which revoked the statewide stay-at-home order that had been in place since March 19, 2020.

You may recall that after the stay-at-home order took effect, the Rating Bureau issued new rules for classifying staff who were suddenly working remotely, as well as payroll reporting for staff who were at home but not working.

The Coronavirus Disease 2019 (COVID-19) rules that expired are:

A. Classifying remote workers in the Classification 8810 – Clerical Office Employees – As a result of the California stay-at-home order, many employers altered employees’ duties so they could be accomplished from home, and often those duties were clerical-like in nature.

Under the rule, an employee could be assigned payroll Classification 8810 if:
• Their duties met the definition of a “clerical office employee” while working from home,
• Their payroll for the balance of the policy period was not assignable to a standard classification that specifically excludes clerical office employees.

B. Salaries of non-working staff – Salaries paid to workers who were at home not working, yet still collecting a paycheck, would be excluded from payroll for workers’ comp premium calculation purposes when the payments were less than or equal to the employee’s regular rate of pay

Expiration: This rule expired 60 days after the end of the stay-at-home order, or Aug. 10. 

The takeaway

What this means is that if you have been classifying remote workers under Classification 8810, they will need to be returned to their original classification. Also, the rules still require that you maintain records that document any changes in duties for your staff during the period these rules were in effect and they were working from home.
The rules also require you to maintain records of their payroll during that period.