A recent change to the WCIRB Dual Wage Thresholds in California could have a large impact on accuracy of contractor’s bids over the next year. These thresholds divide the Workers’ compensation rates into two classes based on the hourly rate of the employee. Those earning above the threshold will have a lower Workers’ compensation rate than those below the threshold. The reasoning behind the threshold is that, the more experienced workers are less likely to produce adverse Workers’ compensation losses, as their experience and training leads to less frequent and severe injuries. These thresholds can have a significant effect on costs as the suggested rate difference between the thresholds can vary up to 62%.
The thresholds are examined every year but had been unchanged in the 2020 and 2021. Due to wage increases and inflation, the WCIRB took some significant increases. For renewals effective 9/1/2022 and after, insureds can expect increases on the thresholds from $2 to $5 depending on the class. (see chart below)
So, let’s take a simple example. A concrete contractor with a renewal date of 01/01/2023 is currently paying two of their employees $29 per hour and they have a combined payroll of $100,000. Prior to the change taking place, these employees qualified for the high wage class (5205) with a rate of $7.02. An employer would pay $7,020. Now that the threshold is $32/ hour, they qualify for the low wage class with a rate of 11.65 and the employer is paying $11,650. That is a 65% increase in cost for just $100,000 in payroll. As you can imagine, if you have not prepared for this increase, bids may be very underpriced.
So, what can you do? When working with clients, we look to discuss solutions to help offset some of these increases. There are a few things to consider:
- Payroll Accuracy– It is always important to verify accuracy of payroll reporting, but if you have not taken the time to ensure accuracy of audits, this would be a good time to do so in order to be sure your higher paid employees are classified correctly.
- Evaluate Employee Performance- Perhaps some of your employees are on track for promotions and raises. Depending on pay and net rates, the increase in pay resulting in lower Workers’ compensation costs could offset some of the payroll raise.
- Explore alternative risk financing- If you are a company with strong risk management culture, favorable loss history, and are more risk tolerant, alternative risk financing strategies such as high deductibles, retroactive plans or captives may be worth considering. It is important to note that these are not programs to enter in without much consideration and financial analysis, so it is best to start this discussion well before your renewal.
- Budget Accordingly- Unfortunately, there will be times where there is not much that can be done to offset the cost, but the sooner the additional cost is budgeted, the more accurate future bids and projections will be.
See below for the update thresholds that are in place as of 09/01/2022
|5183(3)/5187(3)||Heating or Air Conditioning Equipment||$28||$31|
|5185/5186||Automatic Sprinkler Installation||$29||$32|
|5201(1)/5205(1)||Concrete or Cement Work – pouring or finishing of concrete sidewalks, driveways, patios, curbs or gutters||$28||$32|
|5201(2)/5205(2)||Concrete or Cement Work – pouring or finishing of concrete floor slabs, poured in place and on the ground, and concrete slab-type foundations, for other than concrete buildings or structural steel buildings of multi-story construction||$28||$32|
|5474(1)/5482(1)||Painting or Wallpaper Installation||$28||$31|
|5474(3)/5482(3)||Painting – water, oil or gasoline storage tanks||$28||$31|
|5484/5485||Plastering or Stucco Work||$32||$36|
|5538(1)/5542(1)||Sheet Metal Work||$27||$29|
|5538(2)/5542(2)||Heating or Air Conditioning Ductwork||$27||$29|
|6218(1)/6220(1)||Excavation – N.O.C.||$34||$39|
|6315(1)/6316(1)||Water Mains or Connections Construction||$34||$39|
|6315(2)/6316(2)||Gas Mains or Connections Construction||$34||$39|