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Invest in the best. You're listening to Rancio Mesa Studio One Podcast, where each week we break down complex insurance and safety topics to help your business thrive. I'm your host, Alyssa Burley, and I'm joined by Jeremy Huillahan, partner with Rancio Mesa. Today we're going to talk about the California WCIRB's proposed dual-wage threshold increase.
Jeremy, welcome to the show. Hi Alyssa, it's great to be here at Studio One. Well, we're glad that you're here. Thank you.
Now, we've seen California's workers' compensation insurance rating bureau increase the dual-wage thresholds in the past. And in your recent article, you mentioned that the WCIRB's classification and rating committee just reviewed the proposed increases on November 11th, and they have approved 13 of the 16 threshold increases. So, what's driving the WCIRB's decision to increase the dual-wage threshold by $2 to $6, and how does this relate to trends in wages and claims data? Well, Alyssa, as most of you know, in California, there are 16 dual-wage classifications that affect California contractors.
In California, certain construction class codes use a dual-wage system to separate employees into really two tiers, first being the higher wage and the second being the lower wage. The rationale is that workers earning at or above a set hourly threshold qualified for lower workers' compensation rates, because statistically, they tend to have less frequency of claims than severity of claims, whereas the lower-wage employees tend to be less experienced, and unfortunately tend to have higher frequency of claims and oftentimes severity of claims as well. So, without being said, the WCIRB periodically adjusts these thresholds to reflect rising wages, inflation, and updated claims data. When wages increase across the industry, but thresholds stay static, more employees drift into the higher wage threshold, which creates an imbalance.
And so, therefore, the WCIRB now reviews and adjusts the thresholds every two years. Okay. So, how might these proposed changes impact contractors' premiums, and what practical steps should business owners take now to prepare for the September 26th if the proposed changes are approved? Well, I think preparation is pretty critical.
So, what I would recommend is that employers review their payroll and identify employees earning near their current dual-wage threshold. And you can model the impact that a $2 to $6 increase, can increase your premium from a classification standpoint. I'd evaluate those wages and determine if there's any employees whose wages are close to the new proposed threshold, and potentially consider giving them a raise, because it can do a couple of things. One, from a morale standpoint, it can really increase that.
And number two, the offset of the premium savings compared to what your pain, that employee in a higher wage, could be awash at the end of the day. So, it could be a win-win for everybody. And I would just also recommend that you keep really good records. Payrolls are critical, because at the time when dual-rades are changing and payrolls are differing, you can run into a potential audit dispute or issue at out of time.
So, earlier I mentioned that 13 of the 16 proposed thresholds were approved. So why weren't those other three approved, and why might those particular trades be affected more than others? Well, I feel like the classification and rating committee just wanted to make sure that they had it right, and they wanted to really just give it a little bit more time and research to commit to that recommended $6 increase, because obviously it's going to have a tremendous impact on the marketplace. So the committee decided to meet after January, after they've not only met with each other further, but also if you're once they could further outreach with the covered industries that could be affected.
And if I had to guess, I would say the reason those are seeing such high increases is because generally speaking, those trades tend to be tied to unions, and so union employees tend to have higher wages. And so, really what this is going to, the biggest impact, are going to be on those types of contractors that are doing private work residential that don't have the high wage earners as a union contractor would. And I would recommend highly just getting together with your broker in advance to see how these potential increases are going to affect their premiums. Rancho Mesa has a spreadsheet where we can kind of play around with increasing payrolls for individuals and seeing how that compares from an overall cost standpoint.
Okay, so Jeremy, listeners have questions about the dual wage increase, thresholds, or what's the best way to get in touch with you? The best way to reach me is my direct line is 619-937-0174, and my email address is jhulahan at rancho Mesa dot com. All right, well thanks Jeremy for joining me in Studio One. It's been a pleasure, thanks for having me.
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