Author, Kevin Howard, Account Executive, Rancho Mesa Insurance Services, Inc.

There is a lot at stake for roofing contractors in California. Many of us recall playing the game “would you rather” as kids. Would you rather jump into a freezing cold pool in December or eat the world’s hottest chili pepper with no milk available?

For roofers across the state, the question for them is, “would you rather give strategic pay raises to key employees or pay higher than necessary worker’s compensation premiums?” The ideal solution would be to give appropriate pay raises to help retain quality employees and to pay less for worker’s compensation.

To get into the math, the Workers’ Compensation Rating Bureau (WCIRB) has increased the dual wage threshold for the roofing class codes 5552 and 5553 by $2. The prior wage threshold was $27 per hour. The change that went into effect September 1, 2022 adjusted the new wage threshold to $29 for these same codes.

So, any roofers renewing on or after September 1, 2022 will need to explore what makes the most sense regarding the hourly wages of their employees.

This increase for roofing contractors is critical to understand because of the massive rate difference between class code 5553 ($29 or more per hour) and (under $29 per hour).

To drill down further, we analyzed the base rates for class codes 5552 and 5553 from 10 different worker’s compensation carriers. The average delta in base rates was 65%. That is a huge swing in cost for any roofing contractor who is not familiar with the cost benefit analysis that must take place.

As an example, we will use $1 million in payroll for 3 different scenarios to help paint a picture of this wage threshold change.

SCENARIO #1:

ABC Roofing has $1 million in payroll and all employees make $27 per hour. Using a hypothetical net rate of $40 for class code 5552, the insurance premium for scenario #1 would be $400,000.

SCENARIO #2:

XYZ Roofing has $1 million in payroll and all employee make $29 per hour. Using a hypothetical net rate of $14 (which is 65% less than $40), the projected workers’ compensation annual estimated premium would be $140,000.

SCENARIO #3:

ABC’s insurance agent made them aware of the new wage threshold increase well in advance of their renewal. They gave appropriate wage increases to 75% of employees and now have $250,000 of payroll in class code 5552 and $750,000 in class code 5553. Using the same hypothetical net rates from scenarios #1 and #2, the worker’s compensation annual estimated premium would be $205,000.

In conclusion, the massive delta in base and net rates for the roofing class codes 5552 and 5553 requires a proactive approach with your broker in advance of your upcoming workers’ compensation renewal. Laying out options that can include strategic pay increases can and will ultimately bring significant premium savings to your roofing company. With inflationary costs across all trades trending upward, build a plan now to help offset these rising costs.

To learn more about this topic or have a conversation with us, please email me at khoward@ranchomesa.com or call (619) 438-6874.