Workers Compensation Insurance Fundamentals for Employers

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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

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 customerservice@wcirb.com.

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.

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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

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Who is the WCIRB?

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.

Workers’ Compensation Insurance Rating Bureau of California

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

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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 . . . . 9529 (2) DENTAL LABORATORIES–including foundry or casting operations . . . 4692 DENTISTS AND DENTAL SURGEONS–See Health and Human Services

DETECTIVE OR PATROL AGENCIES . . . 7721 (1) DETINNING . . . 3372 (2) DIE CASTING MFG. . . 1925 DISTILLING–N.O.C–See Food Packaging and Processing

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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

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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.

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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.

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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 30-60 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

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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 941 - 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

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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

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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

The X-mod is applied to the premium — increasing or decreasing the billed premium

X-Mod Effect on Premium

DATE: POLICY NO.: 1234567-06

ACME FASTENER CO. 123 MAIN ST. BAKERSFIELD, CA

CLASSIFICATION OF OPERATIONS CLASS RATE PAYROLL PREMIUM

State: CA Rounded to Nearest

Dollar

CLERICAL OFFICE EMPLOYEES -- N.O.C. 8810 1.00 $715,075 $7,151

SUBTOTAL $4,720,864

$117,928

FINAL AUDIT BILLING

Rounded to Nearest Dollar

NUT, BOLT OR SCREW MFG. 3152 2.20 $85,184

SALESPERSONS - OUTSIDE 8742 1.50 $133,800 $2,007

This invoice is based upon information secured by: Earned Premium for Period above: TOTAL AUDIT PREMIUM:

$3,871,989 PERIOD OF ADJUSTMENT: 01/01/12 TO 01/01/13 1.25 EXPERIENCE MOD $23,586 $94,342 $117,928 02/02/13 INSURING COMPANY: WORKERS’ COMPENSATION INSURANCE R US

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Sample Experience Rating Form

“Rate Sheet”

Rating Procedure (Calculation) Payroll, Expected Losses and Actual Losses Header

The Experience Period

NOT USED 01/01/10 Policy Period Policy Period Policy Period Policy Period Policy Period Policy Period NOT USED 01/01/11 01/01/12 01/01/13 01/01/14 01/01/15 01/01/16 Current Policy 04/01/10 04/01/13 EXPERIENCE PERIOD January 1, 2015 ARD

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Limited Experience Modifications

■ Effective January 1, 2015, when an employer only has a

single claimused 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.

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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 www.wcirb.com

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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

‒ www.wcirb.com/contact-us/contact-info

■ Policyholder Ombudsman

‒ www.wcirb.com/contact-us/ombudsman-functions

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 11752.6(g) of the California Insurance Code

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Resources

Question or Issue Resource Link Insurer contact information California Department of Insurance https://interactive.web.insurance.ca. gov/companyprofile/companyprofile Insurance fraud California Department of Insurance www.insurance.ca.gov/0300-fraud/0100-fraud-division-overview/ Insurer rate comparison California Department of Insurance www.insurance.ca.gov/01- consumers/105-type/9-compare-prem/wc-rate/ Dispute process California Department of Insurance www.insurance.ca.gov/01- consumers/120-company/14-wccontacts/

Resources

Question or Issue Resource Link Insurance coverage requirements California Department of Industrial Relations www.dir.ca.gov/dwc/faqs.html Employment status California Department of Industrial Relations www.dir.ca.gov/dlse/faq_indepen dentcontractor.htm

Self insurance California Department of Industrial Relations www.dir.ca.gov/osip/SelfInsured Employers.htm Employer coverage information California Workers' Compensation Coverage Inquiry www.caworkcompcoverage.com

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