Author, Sam Clayton, Vice President, Construction Group, Rancho Mesa Insurance Services, Inc.

What is a dual wage threshold? According to the Workers’ Compensation Insurance Rating Bureau (WCIRB), in California there are sixteen (16) construction operations that are divided into two separate classifications based on the hourly wage of the employee. There are different advisory pure premium rates for the low wage employee and the high wage employee. For mechanical, electrical and plumbing (MEP) contractors, the class codes used are all included in the recently approved increase which will go into effect September 1, 2022. The table below outlines the changes for the MEP class codes by year.

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Why does this matter to MEP contractors? The higher wage employee’s workers’ compensation rate is significantly less (on average 46% less) than the lower wage employee. Therefore, if a company has any employees that are currently just barley in the high wage classification, this would drop those employees into the low wage classification and the employer would pay the higher workers’ compensation rate on those individuals. Depending on how many employees an employer has in this situation, it may be advantageous for the employer to calculate if it makes more sense to give those impacted employees a raise to push them back up into the high wage classification or keep them in the new low wage classification. It should be noted and understood that this change will not impact the employer until their next renewal after September 1, 2022. So while most employers will have time to evaluate the impact, it is crucial to begin the evaluation sooner rather than later.

As with any form of wage inflation, an increase in wages, to keep an employee in the higher wage category will increase the claim costs of a total temporary disability claim if they are injured on the job. While increases in wages are necessary, they will also impact the total cost of the claim, which then can increase the company’s experience modification rating (XMOD).

To mitigate this increase and reduce the likelihood of a lost time claim, employers can take several actions:

• Review and update their existing safety programs.

• Revisit their hiring practices.

• Develop a sustainable return-to-work program.

What should employers do next?

• Work with your trusted insurance advisor and run a needs/benefit analysis on increasing employee wages.

• Understand your numbers.

  • What is your primary threshold and why does it matter?

  • What is my claim cost per point of XMOD?

  • How does my frequency of claims compare to the MEP industry?

  • How does my lost time claim average compare to other MEP contractors?

If you would like assistance understanding how these and other data points impact your company, request a proprietary Key Performance Indicator (KPI) dashboard that puts this information at your fingertips.

You still have time to be proactive, do not let these critical changes catch you by surprise!