2017 Construction Workers' Compensation Update

Woodruff Sawyer strives to keep our clients and partners up to date on the complicated regulatory environment faced by the construction industry. Below is a summary of forthcoming changes recently approved by the California Insurance Commissioner to be effective January 1, 2017 as well as an update on the California Labor Code that could impact your Workers' Compensation insurance program.

Experience Rating System

Experience rating is a tool used to measure loss experience of employers against that of their peer competitors. The developed rate is expressed as a factor; for example .90 provides a 10% credit while a 1.10 provides a 10% debit and is applied against the workers compensation manual insurance premium. As a result, the Experience Modification Rating, or EMR, provides an incentive to employers to improve workplace safety.

Currently, the first $7,000 in losses for each claim is considered primary and counts fully in an employers EMR. Any losses above $7,000 are considered excess and have less weight in the experience rating formula. The changes effective 1/1/17 amend this threshold to a variable split value determined by the contractors payroll size and class codes, with threshold values ranging from $4,500 to $75,000. This variable split places greater weight on frequency of claims as the entire claim value under this threshold will impact theEMR. The WCIRB states the experience modifications for California employers as a whole will remain unchanged (i.e. will continue to average 1.00). However, those employers with higher frequency of losses can expect to be adversely affected. The impact to individual contractors EMR will vary and we encourage you to work with your broker to assess the effect on your 2017 experience rate.

First Aid Claims

Currently, the California Labor Code 5401 (a) does not obligate the employer to report first aid claims. In 6409 (a) Only a Physician as defined in Labor Code 3209(a) has an obligation to report to the employer and insurer. The WCIRB requires all claims be reported so as to comply with Labor Code 6409 (a). This lack of clarity has allowed employers to use the guidelines for OSHA reporting and exclude First Aid Only claims from reports to insurers. The amendments clarify that all claims for which any medical care is provided, including those involving first aid, must be reported to insurers and the WCIRB. However, no changes were made to the Labor Code and no additional enforcement mechanisms have been proposed, so the ultimate impact this amendment will have on the reporting of First Aid claims remains unclear.

AB 2883

The criteria to exclude officers and members of the board of directors of private companies, limited liability companies, general partnerships and corporations has been amended by Assembly Bill 2883. Now the following can elect to be excluded:

1. Officers or members of a Board of Directors only if he/she owns 15% or greater of the common stock of the Corporation; or
2. A General Partner of a Partnership or a Managing Member of a Limited Liability Company

Any party electing to be excluded must execute a written waiver of his/her rights under the statute stating under penalty of perjury that the person is a qualifying Officer, Director, General Partner or Managing Member.

This change applies to all policies in force as of January 1st 2017, not just those programs bound on or after 1/1/2017. Please consult with your broker to confirm your company is in compliance with these new requirements.

Payroll Minimum and Maximum Changes

The current payroll amounts for Executive Officers, Partners, Individual Employers and Members of an LLC have been amended effective 1/1/17. See below:

• Officer Minimum: $48,100
• Officer Maximum: $122,200

This is important for contractors who provide coverage for executives as you prepare your 2017 payroll estimates.

There have been no changes to the wage thresholds for any of the dual wage classifications.

New Classification for 2017

The WCIRB announced the addition of a new class code"5610, Contractors construction or erection all construction subcontracted" and has advised the code "was established to apply to all employees other than executive level supervisors on jobs where the employer subcontracts all operations to licensed subcontractors."

The effects this new class code will have on allocation of payrolls are currently unclear. Potential class codes that 5610 (pure premium rate of $4.84) could replace include the following: 9015 Building Operation (pure premium rate of $7.01), 8742 Outside Sales (pure premium rate of $.52) and 5606 Executive Level Supervisor (pure premium rate of $.94). Until the WCIRB provides additional direction and clarification we recommend clear communication of the roles and responsibilities of each employee and segregation of their attendant payrolls in preparation for audits at the end of the term.

Source: Workers' Compensation Insurance Rating Bureau of California (WCIRB)