Workers Compensation Insurance Fundamentals for Employers

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1 W o r k e r s C o m p e n s a t i o n I n s u r a n c e R a t i n g B u r e a u o f C a l i f o r n i a Workers Compensation Insurance Fundamentals for Employers Presented by the Workers Compensation Insurance Rating Bureau of California Tim Beery, Outreach and Education Specialist Michael Neyland, Field Representative, Classification and Test Audit Central Valley ASSE Safety Symposium Fresno, CA May 20, 2015 Notice The information provided in this Presentation was developed by the Workers Compensation Insurance Rating Bureau of California (WCIRB) solely for the purpose of discussion during this Presentation. The WCIRB shall not be liable for any damages, of any kind, whether direct, indirect, incidental, punitive or consequential, arising from the use, inability to use, or reliance upon information provided in this Presentation Workers Compensation Insurance Rating Bureau of California. All rights reserved. No part of this work may be reproduced or transmitted in any form or by any means, electronic or mechanical, including, without limitation, photocopying and recording, or by any information storage or retrieval system without the prior written permission of the Workers Compensation Insurance Rating Bureau of California (WCIRB), unless such copying is expressly permitted by federal copyright law. Workers Compensation Insurance Rating Bureau of California, WCIRB, WCIRB California, WCIRB Online, X-Mod Direct, escad and the WCIRB California logo (WCIRB Marks) are registered trademarks or service marks of the WCIRB. WCIRB Marks may not be displayed or used in any manner without the WCIRB s prior written permission. Any permitted copying of this work must maintain any and all trademarks and/or service marks on all copies. To seek permission to use any of the WCIRB Marks or any copyrighted material, please contact the Workers Compensation Insurance Rating Bureau of California at [email protected]. 1

2 Purpose To provide employers with a basic overview of the California workers compensation system with specific emphasis on the following areas: Classifying your business Preparing for your final audit How experience rating impacts your bottom line How to get help and other resources Background Workers compensation insurance Was established in California in 1913 Provides medical care for injured workers Provides wage replacement for lost time Is a no-fault system Is required for California employers Is provided through insurance companies May involve agents and brokers Is a complex system with many stakeholders 2

3 Who is the WCIRB? Workers Compensation Insurance Rating Bureau of California Our Mission The WCIRB is California's trusted, objective provider of actuarially-based information and research, advisory pure premium rates, and educational services integral to a healthy workers' compensation system. What Does the WCIRB Do? The WCIRB Collects California workers compensation insurance data Develops advisory pure premium rates subject to approval by the Insurance Commissioner Maintains the Standard Classification System Conducts classification inspections and test audits Publishes experience modifications for eligible California businesses 3

4 W o r k e r s C o m p e n s a t i o n I n s u r a n c e R a t i n g B u r e a u o f C a l i f o r n i a Classifying Your Business The Standard Classification System The Standard Classification System is used to group together businesses with similar operations Approximately 500 industry classifications Contained in the Uniform Statistical Reporting Plan Insurance companies charge different rates for different industry classifications DECORATING interior or exterior hanging flags or bunting for conventions or celebrations (2) DENTAL LABORATORIES including foundry or casting operations DENTISTS AND DENTAL SURGEONS See Health and Human Services DETECTIVE OR PATROL AGENCIES (1) DETINNING (2) DIE CASTING MFG DISTILLING N.O.C See Food Packaging and Processing 4

5 The Single Enterprise Rule The Single Enterprise Rule assigns all operations that normally prevail in a business to a single classification. For example, Classification 9079(1), Restaurants or Taverns, applies to all of the restaurant employees: Cooks Servers Hosts and hostesses Bussers Dishwashers Delivery drivers Bartenders Janitorial staff Managers Standard Exceptions Two classifications are an exception to the Single Enterprise Rule: 8810(1), Clerical Office Employees 8742(1), Salespersons - outside Clerical office employees and outside salespersons are found in support of most industries and have no industry-specific exposure Payroll for standard exceptions may not be divided with any other classification A few classifications specifically include clerical office employees and/or outside salespersons 5

6 Standard Exception: 8810(1), Clerical Office Employees Clerical office employees: Keep the books and records Engage wholly in general office work Have no regular duty of any other nature in the service of the employer Work exclusively in areas separate from other operations of the business If a clerical office employee is also exposed to any operative hazard of the business, then the employee s entire payroll is assigned to the highest rated classification of work to which the employee is exposed. Standard Exception: 8742(1), Salespersons - Outside Outside salespersons are engaged in one or more of the following: Sales or collection away from the premises of the employer Public relations work Outside sales for some portion of their time and clerical office duties for the rest of their time If an outside salesperson is also exposed to any operative hazards of the business, then the employee s entire payroll is assigned to the highest rated classification of work to which the employee is exposed. 6

7 The Multiple Enterprises Rule The Multiple Enterprises Rule permits the assignment of multiple classifications to a business when the operations Do not normally prevail together in a business described by a single classification Are physically separated with no interchange of labor Let s test your knowledge Can employees that spent most of their time in the office be assigned to the clerical office classification? No. Employees must be spend 100% of their time in the office. I have two separate businesses, one is a fast food restaurant and the other is a house cleaning service. Can they have separate classifications? Yes, it is possible, provided there is no interchange of labor and the businesses are physically separate. 7

8 W o r k e r s C o m p e n s a t i o n I n s u r a n c e R a t i n g B u r e a u o f C a l i f o r n i a The Final Payroll Audit The Final Premium Audit Premium for workers compensation insurance policy is initially calculated based on estimated annual payroll The insurance company audits your business payroll records to verify the correct insurance premium due The audit could result in premium adjustments, either as a refund or as additional premium due Normally conducted days after the policy term ends The auditor may be an employee of your insurance company or a firm hired by your insurance company The WCIRB may conduct a test audit to review the accuracy and reliability of the insurance company s audit 8

9 Recordkeeping The auditor may request the following records: Original Source Documents: Time Cards / Time Sheets Payroll Journal - Documentation showing employee payroll information Register - Identifies payments to workers not paid through regular payroll Cash Disbursements Journal - May include payroll, checks, petty cash Ledgers - Core of the recordkeeping system Workers Comp Reports/Summaries - Organizes information by classification CA DE-9 Quarterly Wage and Withholding Report - Used as a second source for verification purposes Federal Form Used as a second source for verification purposes Federal Form 1099-MISC - May show payments to independent contractors Business Operations The auditor may want to conduct a walk-through of your operations in order to ensure your business is correctly classified, and may have questions regarding Raw materials used Machinery or equipment Facilities and space Processing or workflow Customers of the product or service Job duties of individual or groups of employees Related businesses 9

10 W o r k e r s C o m p e n s a t i o n I n s u r a n c e R a t i n g B u r e a u o f C a l i f o r n i a Experience Rating and How It Impacts Your Bottom Line What is Experience Rating? Experience rating Is a state-mandated merit rating system Provides a financial incentive to reduce workplace accidents Is regulated by the Experience Rating Plan Applies to approximately 20% of California employers Most small employers are not eligible Inquire with your insurance representative about if and when you may qualify for an experience modification 10

11 Experience Modifications An experience modification Is published by the WCIRB using payroll and loss information submitted by insurers Compares the loss or claims history of one company to all other companies in the same industry that are similar in size Less than 100% reflects better than average losses while over 100% reflects worse than average losses Increases or decreases the cost of an employer s workers compensation insurance premium Must be applied to your policy regardless of insurer X-Mod Effect on Premium The X-mod is applied to the premium increasing or decreasing the billed premium FINAL AUDIT BILLING INSURING COMPANY: WORKERS COMPENSATION INSURANCE R US DATE: 02/02/13 POLICY NO.: PERIOD OF ADJUSTMENT: 01/01/12 TO 01/01/13 ACME FASTENER CO. 123 MAIN ST. BAKERSFIELD, CA CLASSIFICATION OF OPERATIONS CLASS RATE PAYROLL PREMIUM State: CA Rounded to Nearest Dollar Rounded to Nearest Dollar NUT, BOLT OR SCREW MFG $3,871,989 $85,184 SALESPERSONS - OUTSIDE $133,800 $2,007 CLERICAL OFFICE EMPLOYEES -- N.O.C $715,075 $7,151 SUBTOTAL $4,720,864 $94,342 EXPERIENCE MOD 1.25 $23,586 This invoice is based upon information secured by: _ Estimated Payroll Figures X Payroll Auditor TOTAL AUDIT PREMIUM: Earned Premium for Period above: Less Payments: Less Deposit: User Fee: Assessments: $117,928 $117,928 $100,000 $10,000 $0 $0 _ Voluntary Report(s) submitted by Insured PLEASE PAY THIS AMOUNT: $7,928 11

12 Sample Experience Rating Form Rate Sheet Header Payroll, Expected Losses and Actual Losses Rating Procedure (Calculation) The Experience Period 01/01/10 01/01/11 01/01/12 01/01/13 01/01/14 01/01/15 01/01/16 Policy Period Current Policy Policy Period NOT USED Policy Period Policy Period NOT USED DATA USED DATA USED DATA USED Policy Period Policy Period 04/01/10 04/01/13 EXPERIENCE PERIOD January 1, 2015 ARD 12

13 Limited Experience Modifications Effective January 1, 2015, when an employer only has a single claim used in the calculation, the experience modification is limited to no more than 25 percentage points above the loss-free rating If an employer has more than one claim used in the calculation, the employer s experience modification is not subject to the 25 percentage point limit. An experience modification computed excluding unaudited payroll pursuant to Section III, Rule 3(g) of the Experience Rating Plan is not subject to this limit. Example Limited Experience Modification 13

14 Ownership Considerations Combination of Entities Businesses that share majority (>50%) common ownership are combined for experience rating The experience modification reflects the combined payroll and loss data from all majority-commonly owned entities Change in Ownership If you buy a business, it is likely you will inherit the seller s payroll and loss experience For more information, refer to resources about ownership and the Experience Rating Plan on W o r k e r s C o m p e n s a t i o n I n s u r a n c e R a t i n g B u r e a u o f C a l i f o r n i a Getting Help and Other Resources 14

15 Getting Help Who can you contact if you have a question or dispute regarding your workers compensation insurance policy? It is best to contact your agent, broker or insurance representative first Your insurer has a dispute resolution process Refer to the Policyholder Notice attached to your policy WCIRB Customer Service Policyholder Ombudsman Policyholder Ombudsman The Ombudsman Helps employers understand workers compensation information related to Loss experience Classification assignments Experience modifications Works with employers to explain rules and decisions as well as the rights and options of all parties May act as an intermediary between the employer and their insurance company and/or the WCIRB Is an independent position established by Section (g) of the California Insurance Code 15

16 Resources Question or Issue Insurer contact information Resource California Department of Insurance Link gov/companyprofile/companyprofile Insurance fraud California Department of Insurance fraud/0100-fraud-division-overview/ Insurer rate comparison Dispute process California Department of Insurance California Department of Insurance consumers/105-type/9-compareprem/wc-rate/ consumers/120-company/14- wccontacts/ Resources Question or Issue Insurance coverage requirements Employment status Resource California Department of Industrial Relations California Department of Industrial Relations Link dentcontractor.htm Self insurance California Department of Industrial Relations Employers.htm Employer coverage information California Workers' Compensation Coverage Inquiry 16

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