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Workers Compensation

New Year, New Laws

New Year, New Laws

Happy New Year! As a business owner, I'm sure you're extremely busy with planning and growing your business right about now. However, it's good to make time to stay compliant with some of the new laws affecting California employers.

Workers Compensation Experience Modification 101

Workers' compensation insurance is a major expense for most businesses. If you're an established business, you probably already know about experience modifications (x-mods). Whether experienced or not, you should familiarize yourself with this important and potentially huge premium saving factor.  Please spend a few minutes to read below about what an Experience Modification is an how it can save or cost you thousands of dollars every year. 

WHAT IS AN EXPERIENCE MODIFICATION?

The Workers' Compensation Insurance Rating Bureau (WCIRB) is the agency that determines your x-mod based on your actual losses vs. your expected losses. After base rates then your x-mod is then calculated into your premium which will either lower or raise your total premium.

HOW IS AN EXPERIENCE MODIFICATION CALCULATED?  

The formula is actually very complicated... For the sake of this intro session, all you really need to know for now is that if you have little or no losses your x-mod goes down. If you have high losses or frequent losses, your x-mod goes up. If you're REALLY interested and love math, read this. (I dare you!)

DOES AN X-MOD REALLY MATTER?

Yes! An experience modification matters greatly in what you will pay for workers' compensation insurance. This system was designed to reward businesses with favorable claims history and to penalize businesses with poor claim history. Though complicated, it is actually a great system that rewards businesses that are minimizing work related injuries. 

WHAT DOES AN X-MOD LOOK LIKE?

The "pure modification" starts at 100. At 100 you are neither penalized or credited for experience. It is essentially the "break even point". If you have a modification at 80 you would be credited 20%. If you have a modification of 120 you would be surcharged 20%. If you have an experience modification, contact us and we will gladly locate your WCIRB Risk Summary Report and provide it to you at no cost. 

HOW DO I GET AN EXPERIENCE MODIFICATION? 

The WCIRB will not issue an experience modification until you have three years of experience and until your premium is at $13,000 per year (base rate). Because it is costly to aggregate loss information from carriers and calculate modifications, the WCIRB will not calculate on small accounts. 

HOW DO I IMPROVE MY EXPERIENCE MODIFICATION?

Okay, so you know all about x-mods and have yours. Whether you are over 100 or under, there is always room for improvement... There are several ways to reduce claims and reduce your experience modification. Here are just a few:

  • Implement a safety manual that all staff must adhere to. 
  • Hold routine safety meeting to discuss procedures and change as needed.
  • Perform background checks for new hires to be sure they are not routine offenders of the workers' compensation insurance system. You do not want to be their next victim...
  • Make sure your equipment is regularly checked and replaced if needed. 
  • Designate a manager as an internal loss control coordinator. Give them the classes and skills they need to help you minimize your losses.

Lastly, work with an insurance broker who understands your business and may have some of the above already available for you to utilize... Hint, hint... Contact us to learn more about workers' compensation insurance and experience modification. For extra credit, you can learn more via this link at the Workers' Compensation Insurance Rating Bureau

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Can Business Owners Be Excluded From Workers Compensation Coverage

Certain business owners may elect to exclude themselves from workers' compensation insurance coverage. This applies to officers of a closely held corporation, general partners, and member-managers of limited liability companies. Sole proprietors are always excluded. 

LLC Members and Partners are automatically excluded from the workers compensation coverage, but by written request may elect to be included.Generally, three types of owners will be eligible to elect exclusion:

  • Manager-members of a business operating as a limited liability company
  • Stockholding officers and directors of a corporation owned 100 percent by its officers or directors,
  • General partners or share holding officers of a corporation operating as a general partner (in which case the officers must be the sole shareholders of the corporation) of a business operating as a partnership.

In each of these cases the exclusion must be elected and is not automatic.

If included for coverage these owners are subject to the payroll maximum $109,200 and minimum $42,900 rating rules. 

If election is not made and updated properly, it can be costly. 

The Division of Labor Standards Enforcement will issue and serve a stop order and penalty assessment prohibiting further use of employee labor until Workers’ Compensation Insurance is purchased.  The Workers’ Compensation – Audit and Enforcement Unit may charge penalties and issue an order for unpaid compensation to be paid.Please consult with us if you have any questions regarding your workers compensation coverage.

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Your Workers Compensation Final Audit

The ultimate cost of your workers compensation program is determined by a number of factors, not the least of which is your final audit. The workers compensation audit process can be confusing, complex and, if done incorrectly, expensive. It doesn’t help that the audit process is set up so that most errors benefit the insurance company.

The company may simply ask you to send the information needed to perform the audit, or may choose to conduct a physical audit in your office. In either case the auditor will probably want to see your State quarterly wage and withholding reports (DE-6s), payroll journals, and any previously filed payroll reports for the period being audited. Occasionally, other records that relate to your workers compensation policy may be requested as well.

Regardless of what records are requested, it is imperative that the payroll is placed in the appropriate classifications and that any rules that could work to your advantage are employed.

Your premium is based on gross payroll, not net payroll. Gross payroll includes salaries, commissions, bonuses, vacation and holiday pay, sick pay, overtime payments (which can subsequently be deducted), the value of gifts, all substitutes for money earned or paid during the policy period, including meals and lodging in lieu of wages, automobile allowances, and any amount by which an employee’s salary is reduced to fund a pension or deferred compensation plan.

If you subcontract work, you will be asked to supply basic information about the subcontractors, and verification that they have appropriate insurance. Recognize that if they do not carry the appropriate insurance, you will be charged premium based on their exposures.

Some payroll classifications allow you to split an employee’s payroll among various class codes (recognize that many, including clerical, do not allow this). In order to take advantage of such a split, proper payroll records must be kept that specifically identify time worked in each classification.

The following are additional tips that you should be aware of during the course of the audit process:

  1. Appropriate Classifications - Don’t overlook clerical and sales classifications. In addition, if you have several classifications on your policy with various rates, make sure you understand the differences so you can classify your employees in the most favorable category.
  2. Executive Officers and Partners - Executive Officers and Partners are capped for payroll purposes. For 2014, the maximum amount that an executive officer or partner in California can be charged is $109,200. If you have elected to exclude executive officers or partners, make certain that their payroll is not included in the audit.
  3. Overtime - You are not required to pay workers compensation premium on the overtime portion of a wage. In other words, if somebody who normally makes $10 an hour works an hour of overtime and is paid $15, you would pay premium on the $10 but not the extra $5. It is important that your payroll records be maintained to show the regular rate of pay, the overtime earnings by employee, and a summary by type of operation performed so that the auditor can give you credit for overtime excess.
  4. Severance - If you have paid severance to anyone in the past year, you can deduct this from your audit. You are not required to pay workers compensation premium on severance pay.
  5. Payments to Inactive Employees - Payments to inactive employees are not counted when calculating your workers compensation premium.
  6. Third Party Sick Pay - Were there any employees hurt on the job that received disability payments (short or long term) from a disability carrier or provider? If this third party sick pay was included in the employees W-2 and/or payroll register, you can deduct it.
  7. Travel Expense Offset - Did any employees receive additional funds to offset travel expenses? This is not chargeable as payroll.
  8. Form 1099 - If anyone was paid by Form 1099 through your payroll, was this amount deducted for workers compensation purposes?
  9. Uniform Allowance –- Was anything added to individuals’ payrolls to compensate for required work clothes or safety equipment? If so, this can be deducted.
  10. Any Other Additions or Exclusions –- Other than base pay, bonuses and commissions, were there any other additions or exclusions to payroll?
  11. Owner-Controlled Insurance Programs (“Wrap-Up” Policies) –- Were you involved in any owner-controlled insurance programs (“wrap ups”) that extended to workers compensation? If so, you can deduct this payroll from your audit.

Guide To Workers' Compensation

All business owners with employees need workers' compensation insurance. Our partner carrier, Employers Insurance Group, put together this great informational piece on worker's compensation insurance basics. Please take a moment to familiarize yourselves with this vital coverage for your business. Contact our office if you have any questions.

The Workers Compensation Insurance Roller Coaster

California tends to have some of the highest workers' compensation rates in the country. In fact, just about everything in California seems more expensive. However, did you know that we currently are seeing some of the lowest rates our state has seen in several years?

Soft vs. Hard Markets:

Insurance professionals refer to insurance markets as "hard" or "soft." Simply put, a hard market is when losses start to get out of control, carriers respond by increasing rates or decline to offer coverage completely. The market dries up leaving less competition and higher rates. A soft market is when losses are stable and there are many markets competing for business. Recent workers' compensation insurance reforms have helped rates stay at these low levels, but carriers are beginning to see losses on the rise and are increasing their rates. 

What does this mean for business owners?

Due to the downturn in the economy we have seen clients with lower than typical payroll. Combining low payroll and lower workers' compensation rates means business owners are seeing dramatically lower insurance costs. However, health care costs continue to rise. Losses are starting to take their toll on carriers and we are beginning to see the rates creep back up. To put this back into the roller coaster metaphor, business owners just finished the thrill of the ride because rates have dropped steadily for the past 4-6 years, but they are likely hearing the first clicks for the ride up to the next peak. 

We prefer calm rides. Dramatic rate changes are difficult to handle for everyone. Unfortunately workers' compensation in California has historically been a "Space Mountain" rater than a "Peter Pan" adventure. Prepare yourselves now by managing your claims, revisiting your loss control efforts, and sticking with a carrier that can endure the ride. If you have questions about workers' compensation insurance or want to lock in your rates with a secure broker,contact us

Workers Compensation Insurance Rates May Be on The Rise

There has been much debate over the current state of workers' compensation insurance in Calififornia, especially over where rates are headed. Well, based on the article below, the good news for employers is that they are apparently not going anywhere. With losses lower than anticipated, it is likely that rates will stay level well into the new year!


WCIRB submitted its pure premium rate filing to California Insurance Commissioner Dave Jones on Aug. 21 proposing rates that averaged $2.68 per $100 of payroll, or 12.6 percent higher than the industry average filed pure premium rate as of July 1, 2012. Those rates were based on March 31, 2012 premium and loss experience. In that filing advised the rates could be amended pending the enactment of Senate Bill 863 and the receipt of insurer premium and loss experience valued as of June 30, 2012. Read more...

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What Does A Duck Have To Do With Business Insurance

I'm sure you have heard of the duck test, "If it looks like a duck, swims like a duck, and quacks like a duck, then it probably is a duck." I have mentioned this before, but if you have staff you are required by law (most states) to carry workers' compensation insurance. Workers' compensation insurance primarily provides coverage for your employees if they are injured on the job and need medical attention as well as disability income while out due to the injury. 

We hear many reasons why small business owners do not have employees including, "I don't need to carry it since I 1099 my staff." While it may be true that independent contractors do not need be furnished workers' compensation insurance, government agencies such as the California Department of Industrial Relations are cracking down on employers that do not provide workers' compensation for employees. What most often will happen is that an employee gets injured on the job. They do not have health insurance and claim it was a work related injury. The employee and health providers look to the employer for coverage.

Oops, no workers' compensation insurance! The employee cannot afford the bills and gets the appropriate agencies involved because they feel they are an employee. The DIR and IRS essentially will do a "duck test" of their employment. Some questions you should be asking yourself are:

  • Do I set hours for staff?
  • Do I train staff?
  • Do I direct and control staff?
  • Do I furnish tools and material to staff to complete their job?

 If you answered yes to any or most of these (especially controlling staff) then chances are they would likely fall into the employee classification. The penalties for not providing employees with workers' compensation insurance in California are criminal and include monetary fines of up to $100,000. This is serious business...

The good news is that workers' compensation insurance is at a 5-6 year low right now. We work with some of the best markets that can easily and affordable provide you with appropriate coverage. Please call or contact us with any questions about this or any other business insurance question or concern. You can also request a quote here

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