Five Things to Know Before Your Annual Surety Meeting

Author, Matt Gaynor, Director of Surety, Rancho Mesa Insurance Services, Inc.

November is the month that I meet with our contractor clients to discuss how the current year will end up and begin planning for the next year. We will also touch base regarding the items our surety carrier partners will want to hear about when we schedule our annual meetings (after the December 31, 2022 financial information is available).

Similar to having an open book test, if our contractor knows in advance what will be requested, they can prepare accordingly and anticipate any “red flag” type items that might be of concern for the bond company. Below is a general list:

1. Items on the balance sheet with an emphasis on cash, accounts receivable, borrowing against the bank line of credit, and equity.

   An aging schedule of the accounts receivables will be very helpful to determine what amount is in excess of 90 day collections.

2. The revenue and net profit or net loss from the income statement to reflect if 2022 was a profitable or losing year. Also, a discussion of any Paycheck Protection Program (PPP) money that was loaned to the contractor and if the entire amount was forgiven in 2022.

3. They will review the work in progress and completed contract schedules to discuss which projects were successful and others that lost money. Be prepared to provide additional detail on any problems connected with losing projects and steps taken to correct this on future work.

4. Potential new opportunities you anticipate in 2023. Will any of these projects exceed your current program, contain work outside your normal scope or geographic territory? Be prepared to address how you will manage additional risk that may be a concern to the bond company.

5. Tax Planning. What additional withdraws do you anticipate to cover taxes, etc.?

If you would like more information on how your bond carrier might analyze your 2022 financial information, please contact me at (619)937-0165 or mgaynor@ranchomesa.com.

Training Supervisors on Workplace Injury Protocol Can Improve Claim Outcomes

Author, Sam Brown, Account Executive, Rancho Mesa Insurance Services, Inc.

California employers work hard to maintain a safe workplace, but accidents and injuries can occur. While human resources professionals typically have an excellent understanding of the workers’ compensation claim process, proper supervisor training can improve workers’ compensation outcomes for employers and their injured workers.

Supervisors are often the first to become aware of a workplace injury. Without proper training a supervisor may have the best of intentions, but can create problems by not following company protocols. Sound supervisor training may include:

• How to Get the Injured Worker Medical Attention
  Supervisors should know the designated medical provider or understand how and when to direct an employee to use telephonic nurse triage services. The supervisor should know what information the provider will need and, if necessary, how the injured worker should be transported to the medical provider’s physical location.

• Internal Communication
  Supervisors must know how to initiate documenting a workplace injury and how to notify the proper parties of the incident. What incident report should be used? Are witness statements important? Who needs to know of the incident as soon as possible? Whose responsibility is it to report the claim to the insurance company?

• Effective Communication
  A supervisor setting a tone of empathy immediately following a workplace injury can lead to positive outcomes and reduce the likelihood of litigation. Effective communication can even reduce claim frequency. A study by Shaw, et al., shows how four hours of supervisor training on communication skills and accommodation for workers reporting health concerns produced “a 47% reduction in new claims and an 18% reduction in active lost-time claims.”

Well-designed training can greatly improve workers’ compensation claim outcomes when supervisors follow company protocols, get injured workers medical care, and practice effective communication in the workplace.

Rancho Mesa has developed downloadable forms for the Supervisor’s Report of Employee Accident or Near Miss, and Witness’ Statement to help collect important information about an accident.

For more information on effective workers’ compensation programs, please contact me at sbrown@ranchomesa.com or (619) 937-0175.

Cal/OSHA Proposes Permanent COVID-19 Standards

Author, Lauren Stumpf, Media Communications & Client Services Specialist, Rancho Mesa Insurance Services, Inc.

With the COVID-19 Emergency Temporary Standards (ETS) scheduled to expire at the end of the year, Cal/OSHA has proposed new permanent standards.

The proposed permanent COVID-19 standards will be voted on during the December 15, 2022 Occupational Safety and Health Standards Board meeting. If passed, despite the word “permanent” being in the title, the standard will be in effect for the following two years. However, the record keeping requirements of the standard will apply for the following three years. So, with an effective date of January 1, 2023, the COVID-19 requirements can be expected to lift on January 1, 2025 and the recordkeeping requirements expected to lift on January 1, 2026.

Some proposed changes within the permanent COVID-19 standards include:

• Employer Notice Requirements - The proposed permanent standards edits what information employers need to include in exposure notices to employees and the acceptable ways in which employers must distribute those notices.

• Definition Changes - There are definition changes to what is considered a “close contact,” an “exposed group,” an “infectious period,” an “outbreak,” a “returned case,” and more.

• Removal of the Exclusion Pay Policy - Under the current ETS, employers have to provide exclusion pay before requiring employees to exhaust other forms of potential paid leave. With the new proposed standards this is eliminated and employers would only need to provide their employees with information about local and federal COVID-19 benefits.

• Reporting and Recordkeeping Requirements - Employers will no longer need to keep a record of close contacts and will no longer have to report information about workplace cases and outbreaks to their local health department. However, in a major outbreak setting, employers must report the outbreak to Cal/OSHA. That being said, employers still need to be aware of their local health department’s requirements.

For a detailed look at the proposed changes please refer to Cal/OSHA’s formal proposal document.

While there appears to be few differences between the current temporary standards and the new proposed permanent standards, it is recommended for businesses to locate and review their COVID-19 Prevention Program to ensure it can be readily updated. The new proposed permanent standards removes the requirement for employers to keep a separate COVID-19 Prevention Program, as long as their Injury and Illness Prevention Program (IIPP), includes COVID-19 policies. So even if you decide to only have an IIPP, it will still need to be updated with the latest COVID-19 procedures. Rancho Mesa has a COVID-19 Prevention Program template, that can be downloaded here.

Rancho Mesa will update its clients and readers with the status of the final rule once Cal/OSHA votes on December 15, 2022.

Auto Insurance Carriers Struggle With Effects of Inflation

Author, Jeremy Hoolihan, Account Executive, Rancho Mesa Insurance Services, Inc.

Inflation continues to plague our nation with no end in sight. With a consumer price index (CPI) reaching as high as 9.1% in July of 2022, the trickledown effect is far reaching. In the second quarter of 2022, the auto insurance marketplace saw a loss ratio of 78.4%. This is quite a spike compared to the average loss ratio of 65% between the years of 2016-2020. Inflation is not the only contributing factor to the challenges within the auto insurance marketplace; we’ll discuss medical inflation, supply chain shortages, and labor shortages.

A continual rise in medical inflation has resulted in the increased cost of treating injured drivers and passengers. Since 2020, healthcare spending has increased by 9.7%. In the first quarter of 2022, the average bodily injury claim was up 24.2% with medical inflation being a significant factor. Because insurance companies are having to pay more due to medical inflation, consumers are seeing increased premiums.    

Also, in the first quarter of 2022, the average collision claim cost reached a record of $5,743. This is a 36.5% increase since the first quarter of 2020. Much of this increase can be attributed to supply chain shortages and disruptions.

COVID-19 shutdowns caused decreasing demand for good and products. There was also an ice storm in February of 2021 that knocked out factories across the South. The Suez Canal was blocked for six days, and there was a semiconductor shortage due to the United States’ reliance on companies overseas.

Now that things have opened up post-pandemic, there are still shortages of available parts and supplies which continues to affect our economy. These supply chain factors have contributed to the average cost of a new car increasing 11.4% and the average used car jumping 7.1%. With the costs of cars increasing and the shortage of available parts, the result is a huge uptick in the cost of repairs and/or replacement of damaged vehicles, as well as the insurance costs.

Labor shortages are another important factor impacting the auto insurance marketplace. Simply put, the shortage has made it difficult to find skilled workers to make vehicle repairs. While the unemployment rate is back to pre-pandemic rates, many people are still testing the waters as they return to their jobs and, in some cases, taking completely different career paths. With the increased demand for workers, employers are offering and paying higher wages, which also leads to higher costs for goods and services, which further increases overall insurance costs.

As auto insurance premiums continue skyrocketing as a result of these inflationary factors, now is the time to focus on improving your business’ auto program. 

For help in developing a Fleet Safety Program that will improve your company’s risk profile and policies and procedures, please feel free to reach out to me at (619) 937-0174 or jhoolihan@ranchomesa.com.

Don’t Overlook the Importance of Fleet Safety

Author, Greg Garcia, Account Executive, Rancho Mesa Insurance Services, Inc.

From an insurance premium standpoint, one of the largest cost for any landscape company would be the auto policy, and for good reason. According to the National Highway Traffic Safety Administration, a motor vehicle crash happens every 12 minutes. Of course, not all those accidents are from landscapers, but it’s still a staggering statistic none the less. 

For all auto insurers, their combined ratios (claims dollars/premium) for this line of insurance is typically above 130%. Thus, for every dollar collected in premium they are on average paying out $1.30 in claim costs. These high claim costs are due in part to larger settlements being paid out for bodily injury, higher replacement costs (parts/labor) for the vehicles, etc. As a result, auto insurance premiums are rising overall and in some cases those increases are significant.

While an individual company can have little impact on the industry as a whole, there are a few areas landscape or other businesses can be aware of that will help defer or reduce premium increases for them.

The following are a few common mistakes landscape drivers are making to create an unsafe driving environment:

• Distracted Driving – This is by far the most common mistake any driver can make. It is imperative that your employees remain focused while operating a vehicle. The number one cause of distracted driving comes from cell phone use while driving a vehicle.

• Traveling at unsafe speeds

• Following too closely behind another vehicle

Best in class landscape companies understand the importance of fleet safety and really hone in on their fleet safety procedures. 

Some of the things the top landscape companies are doing to help keep auto accidents to a minimum include:

• Maintain your vehicles - Always take care of your vehicles, making sure everything is running properly. Complete regular inspections (daily, weekly, and monthly). Keep accurate maintenance logs and check for tire and brake wear. Vehicle maintenance and care is an important safety component, and helps reduce the chance of an auto accident.

• Fleet Safety Program -  Create a written company Fleet Safety Program and provide driver safety trainings to all employees. The Fleet Safety Program must detail leadership’s expectation of what is required to be a driver for the company and what the consequences will be if the procedures are not met. Driver trainings should not be a “check list” item, meaning you do it once and then you forget about it. 

For the Fleet Safety Program and the driver trainings to be effective and successful, they need to be a recurring training topic. 

Watch our Fleet Safety: Above and Beyond Compliance webinar to help you get started with your Fleet Safety Program. Your Client Services Coordinator will be happy to provide tools to help assist you in building your program.

By taking a serious look at your current fleet safety procedures and making necessary changes, you will not only lower your annual premiums on your auto policy, but you will also create a safer environment for your employees.

If you have any questions or want to discuss your risk management needs further, please reach out to me at ggarcia@ranchomesa.com and I will be happy to help you.

Contractors Prepare to Bid for $1.2 Trillion in Government Infrastructure Contracts

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

Last fall, the federal government passed the $1.2 trillion Infrastructure Investment and Jobs Act to rebuild and modernize America’s roads, bridges, transit, rail, airports, broadband and wastewater infrastructure. With this tsunami of public funds starting to become available, state and local government agencies will require contractors to enter a pre-qualification process in order to bid upcoming projects. Many of these entities will look closely at the contractor’s Experience Modification Rate (EMR or ExMod).

The EMR is a numeric representation of a company’s payroll and claims history, compared to businesses in the same industry or standard industry classification. EMRs create a common baseline for businesses while allowing for a surcharge when employers' claims are worse than expected and credit when employers' claims are better than the industry average. More specifically, companies with an EMR rate of 1.00 are considered to have an average loss experience. Factors greater than 1.00 are considered worse than average, while less than 1.00 are considered better than average.

Pre-Qualification Process

In the highly competitive world of construction bidding, it has become more common that contractors can be precluded from the pre-qualification process due solely to above-average EMRs. This represents an oversight as many companies have strong, well-developed safety programs, yet their EMR is holding them back. Some examples of this are:

• EMRs are lagging factors. They only factor the last three policy periods, not including the current policy period.

• EMRs can include claims that may have been unavoidable and do not represent a lack of safety (i.e. an employee is rear-ended by an uninsured motorist).

• Large severity claims from smaller sized companies can impact the EMR much more negatively than a similar sized claim at a larger firm.

• The effectiveness of claims handling may vary from one insurance company to another, thus impacting certain employers when cases remain open with high reserves.

Rather than placing such a critical importance on the EMR Rate, owners and contractors designing the pre-qualification document should include frequency indicators like incident and DART rate (i.e., days away, restricted or transferred) forms. These measuring tools incorporate current year totals and can provide up to 5 years of historical data. Incident rate calculations indicate how many employees per 100 have been injured under OSHA rules within the specific time period. The DART rate looks at the amount of time an injured employee is away from his or her regular job. Lastly, contractors attempting to become pre-qualified should have the ability to provide a detailed explanation should their EMR exceed 100.

This can include loss data, a summary of the company’s Illness and Injury Prevention Plan (IIPP) and code of safe practices, and more information on what exactly the company is doing to reduce future exposure to loss.

Given the importance of the pre-qualification process and the potential for contractors to be precluded from new opportunities to bid work, we’ve developed a Best Practices approach to assist companies in managing their EMR.

Managing Your EMR With Best Practices

The Best Practices approach to high EMRs includes a total claim physical, safety KPI dashboard, claims advocacy, and implementation of risk management tools.

Total Claim Physical
The total claim physical accurately identifies your company's strengths and weaknesses, and then scores the company against others in the industry. It includes an audit of the EMR, analysis of claim frequency and severity, claim trends and determine root causes, provide quarterly claims reviews, and conduct pre-unit stat meetings.

Safety Key Performance Indicators (KPI) Dashboard
A tool companies can use to strategically manage the underlying components that directly impact the experience modification rate and help project future experience modification deviations.

Claims Advocacy
Utilizing a claims advocate can decrease existing claim costs, reduce excessive reserves, and expedite claim closures, which can reduce the EMR.

Risk Management Tools
Our Risk Management application provides access to safety training materials and tracking, analysis of incidents and OSHA recordkeeping, and monthly risk management workshops and webinars.

For more information on managing your EMR before the pre-qualification process, contact me  at (619) 937-0167 or sclayton@ranchomesa.com.

Benefits of Offering Modified Work to Injured Workers

Author, Jim Malone, Workers’ Compensation Claims Advocate, Rancho Mesa Insurance Services, Inc.

There are many things the employer is required to do after a work related injury occurs. There are also additional things an employer can and should do after an employee is injured, though not required by any regulatory agency, like offering modified work. 

Obviously, there is the immediate need to address the injury itself. This is usually done by the lead, foreman, or supervisor and would include stopping the bleeding, placing ice on the injured area, etc. The injured worker’s injury then needs to be assessed by a medical professional. There are options for having the injury medically assessed. For minor injuries, it may be by calling a triage service or having a medical triage specialist (nurse or paramedic) go to the injured worker to determine if this minor injury can be taken care of with self-care or if the injured worker needs to be seen at an occupational medicine clinic. With referring your injured worker to a clinic, you should determine if the injured worker can drive themselves or if they need a company representative to drive them.

After the injury is properly addressed, focus on the reporting of the claim. Gather the forms and reports that need to be completed or obtained to provide to the insurance adjuster. Your next decision comes after the treating physician completes their initial evaluation. The physician should provide doctor notes, the mechanism of injury, how the injury occurred, and any other additional information. The physician may also provide wound care, sutures, x-rays, ace wraps, medications, ointments and make referrals for physical therapy, acupuncture and/or chiropractic treatment, etc.

The treating physician then provides their recommendations on the injured worker’s ability to return to work. For more severe injuries, the treating physician may want the injured worker to remain off work completely and could recommend temporary total disability. After some time off work and with some provided treatment, the doctor usually recommends that the injured worker return to work, but with some restrictions, such as not lifting over a certain amount of weight, not exceeding so many hours of weight bearing, etc. The restrictions provided are usually consistent with the body part(s) that were injured.  

So, the treating physician is releasing the injured worker to return to work but not to full, physical capacity. This is called a release to modified work, restricted duties, or light duties. From the insurance claims perspective, this is referred to as temporary partial disability. The modified work restrictions are usually slowly decreased while the injured worker continues the treatments and recovers from the work injury. This gradual recovery continues until the injured worker is able to resume all their physical work activities. This is called being released to full work activities, unrestricted duties, or to their usual and customary duties.

When the injured worker is released to modified work (i.e., restricted, light) duties, the employer decides if they can provide the injured employee duties that allows them to work while avoiding certain physical activities consistent with the doctor’s return to work recommendations.  

Benefits to the Employee

Providing modified, restricted, light duty work serves many purposes. First and foremost, providing modified work can reassure an injured worker that their employer cares for them personally, professionally, and psychologically. A work injury can be a very traumatic event, and returning to work as soon as possible after a work injury can help the injured worker feel confident their employer will be there for them and their family as they recover from the accident. This is one of the ways the employer can show their support of, and gratitude for, their employees and all the hard work they provide.  

Many studies have shown that providing modified work results in injured workers recovering quicker and more completely. It allows the injured worker to maintain their earnings and usual working schedule, while maintaining their relationships with the foreman, supervisors, and co-workers. Modified work also allows the injured employee to remain physically and mentally active while also allowing them to focus on their treatment and recovery.

Effect on the Business

For a business, a work injury can be very disruptive. The disruption of a work injury usually causes employers to move employees around to compensate for a lost employee. Employees working together as a team would see a change in work partners. Crews would be short a person who would be responsible for a certain part of an assignment resulting in changes in each crew member’s responsibilities. A work injury may affect how quickly the team can complete a job or project, how quickly the crew completes their daily tasks, and even how the employer is able to bid on future jobs or projects. 

Work injuries are stressful for an employer and the remaining employees. Besides the lost productivity from an injured worker, there may also be an emotional strain to other employees, or concerns about their own safety, about how they would be able to handle such an injury or how they would be treated if they were injured. 

Assigning an injured worker to modified work allows the employer to address other items of their business that may not get addressed when all employees are working at full capacity or when there are not enough employees to address these other areas. Assigning an injured worker to modified duties can allow an employer get caught up on cleaning certain areas, re-organizing a storeroom, updating inventory, etc. 

Benefits to the Business

Providing modified work allows an employer to have a direct impact on the overall cost of a work-related injury claim. By providing modified work, the employer pays the injured worker’s wages instead of the claims adjuster paying temporary disability benefits. If the employer does not offer modified work for an injured worker, instead of being temporarily partially disabled, the injured worker is then considered temporarily totally disabled. The claims adjuster would then be required to pay the injured worker temporary disability benefits at 2/3 of the injured worker’s average weekly wage. This is calculated from the 52 weeks of previous earning information you provide the adjuster when the claim was being created. This is also a tax-free benefit. 

However, getting these temporary disability benefits can also be a disincentive for injured workers to return to their normal work duties sooner than they are required. There is an increasing trend of injured workers refusing to return to modified work offered by their employers. Whether they want to stay home and collect temporary disability benefits, complete a side job they were working on while concurrently working for the employer, or if they believe they will recover quicker by simply staying home, injured workers can make it difficult to provide modified work. They can be disruptive, argumentative and provide poor quality of work while performing modified work. They can be insubordinate while performing modified work and can arrive late, leave early, take too much time for doctor or treatment appointments, etc. They can frustrate the employer so much that the employer may want to reconsider offering modified work to this injured worker. If the employee declines the employer’s modified work offer, the injured worker would no longer receive any wages from the employer and they would not be entitled to any temporary disability benefits/payments from the adjuster.   

Injured workers retain legal counsel for work-related injuries for a wide variety of reasons. Disagreements over returning to modified work is one of the most common of these reasons. When an attorney becomes involved in a workers’ compensation claim, there are usually disagreements over a number of issues, but the modified work dispute from the attorney is usually that the employer did not properly advise or instruct the injured worker about their responsibilities related to modified work offers. 

The lost time from work issue, after modified work is declined by the injured worker, usually becomes a monetary issue that is documented at the time, then later becomes one of the issues to negotiate or resolve when the claim is being settled. Usually a dispute like this is negotiated somewhere between the full value of the time lost from work and zero. This adds to the overall cost of a workers’ compensation claim. The development of this issue, however, can be completely avoided if the employer were to document the offer of modified work in writing. The employer can draft their own offer of modified work letter. The claims adjuster, their return to work specialists, or your claims advocate can also provide assistance with drafting of this letter. 

When an injured worker declines modified work offers, they sometimes get state disability benefits from the State of California Employment Develop Department (EDD), who in turn file a lien (or bill) for the lost time benefits paid to the injured worker on the workers’ compensation claim.  If the attorney and the claims adjuster are unable to resolve this issue, the documentation obtained (The Modified Work Offer letter) when the modified work was offered will usually be sufficient evidence for not reimbursing EDD for any of their lien, and/or for the workers’ compensation judge to agree with the employer and claims adjuster on this issue. 

Offering modified work is a very good thing to do for injured workers, for their recovery, and for the employer. It is also a very effective and proven strategy for handling workers’ compensation claims. Offering modified work can speed up the injured worker’s recovery. This allows the workers’ compensation claim to move quicker through the claim process to resolution or settlement. This usually results in the injured worker’s return to their normal work activities, their continued employment with the employer, and in reducing the cost of the workers’ compensation claim.

Safety and Training Make It Easy to Do the Right Thing

Joe Lewis is the COO of Yard Solutions, a design build and maintenance company servicing residential and commercial customers in and around the Groveport, Ohio region. He also serves as the head chair of the National Association of Landscape Professionals’ (NALP) Safety Committee.

Joe brings unique perspective to the landscape industry due to his previous career in the Unites States Marines from 1997 to 2014. 

In this podcast episode Joe and Rancho Mesa’s Landscape Group Leader Drew Garcia discuss the importance of training that makes it easy for employees to do the right thing in safety.

You will hear Joe explain instilling sound habits for safety, reinforcing these habits through engaged leadership and relevant feedback, and then validating them based on the company’s resulting performance in safety, profitability, and quality.

Roofing Contractors Prepare for the Dual Wage Threshold Increase

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.

Employee Retention Credit

Rancho Mesa's Account Executive of the Surety Department Andy Roberts is joined by Tina Jani, CPA and Partner at Covell, Jani & Pasch LLP, to discuss the Employee Retention Credit.

This podcast is designed to provide general information as to the subject matter covered. Neither the publisher nor the presenter by and through this presentation is rendering legal, accounting, or other professional services. If professional advice is required, you need to contact your tax advisor, the presenter, or the publisher for their services under a separate engagement contract.

TRANSCRIPT

Andy Roberts: Hello everyone and welcome back to StudioOne, our safety and risk management network. I’m Andy Roberts, Account Executive in the Surety Group with Rancho Mesa and joining me is Tina Jani, who is a CPA and Partner at Covell, Jani & Pasch LLP. Today we are going to be talking about the Employee Retention Credit, which is something many contractors remain unaware of.  Welcome to the show, Tina.

Tina Jani: Thank you very much for having me. I am very excited to be here!

Andy: As I mentioned the Employee Retention Credit is something a lot of contractors haven’t heard of, but what is the ERC?

Tina: The ERC is an economic recovery program created by the CARES Act – the same legislation that created the Paycheck Protection Program (PPP).

Andy: That’s interesting that it was brought about by the same legislation that provided for the PPP but what brought about the need for the ERC?

Tina: The US government introduced the program to help businesses with employees who got affected either by full/partial shutdown rules or if the gross revenue went down by certain percentage in 2020 and 2021.

Your business may qualify for a stimulus check of up to $26,000 per employee by claiming employee retention tax credits.

Andy: You mentioned percentage. Can you elaborate what are those percentages?

Tina: Yes, absolutely! The key percentages to keep in mind are:
a. For 2020 - 50%
b. And for 2021 - 20%

What that means is you take 2019 as a base year. Then you compare your Quarterly Gross revenue for the year 2020 and 2021 with the same quarter in 2019. If your quarterly gross receipt went down by 50% in any quarter in 2020 or 20% in 2021, you are eligible for the Employee Retention credit for that particular quarter.

Please keep in mind that these are just key points. The actual rules are much more detailed and generous.

Andy: This is all great information. So when did the program start and when did it end?

Tina: The program started on March 13, 2020 and it ended for regular business on September 30, 2021. There are special rules for new businesses started after February 15, 2020 or if you are  severely financially distressed employer  that makes you eligible for the ERC for the fourth quarter of 2021 as well.

Andy: Does that mean it’s too late to apply for the ERC?

Tina: No, absolutely not. You can go back and amend your payroll tax return which is form 941. The statue runs for three years from the date the original 941 was due. You can still apply for the ERC by filing form 941X. The first statue will for Q1 2020 will run out on April 30, 2023. Businesses still have from 6 months to one and a half year to go back and amend their payroll tax returns and apply for the ERC. However, we highly recommend that businesses pay attention to this credit as soon as possible.

Andy: Do you have to prove that your business was affected by COVID to be eligible for the ERC?

Tina: No, you don’t have to prove that your business was affected by COVID. As long as you show a drop in the gross revenue and that can be because of any reason, your business is eligible for the ERC.

Andy: Can you give me an example of a client that didn’t know about the ERC until you told them and how they benefited?

Tina: It is interesting that almost every business was familiar with the PPP loans but not very many businesses are familiar with the ERC. When we started working on the ERC, we contacted all our clients including our largest client and asked for their gross revenue analysis. We made them aware of the ERC and they were eligible for two quarters, total $2.8m. This is just one example. There are numerous businesses out there who are eligible for the ERC and has not applied yet.

Andy: That was all great information and this sounds like a credit that can have a big influence on a contractor’s financial statement, which as you know, in the world of Surety Bonds is very important because a contractors financials are the driving force behind what they can qualify for when it comes to a bond program. This was a somewhat basic overview of the ERC and how it works and I know it’s more complicated and requires the help of an expert like yourself, so how would you recommend a company owner start the process of determining if they qualify for the ERC?

Tina: ERC is a very generous program that a small business owner should not ignore. The process is very simple and straightforward, especially under gross revenue drop method. Basically, you start with comparing your gross revenue. They should contact their CPA or tax professional to start the discussion I am happy to answer any questions and can be reached at my email address pjani@cjp-cpas.com or my phone 760-737-0700.

Andy: That’s great to hear. Thank you so much for joining me Tina to discuss this very important topic.

Tina: Thank you for having me.

Retaining Non-Profit Employees in Vital Service Roles

Author, Jack Marrs, Associate Account Executive, Rancho Mesa Insurance Services, Inc.

Employees and volunteers are the heart of non-profits. Without them, non-profits would never have a chance to fulfill their missions. They are the organizations who communities rely on for support.

Dating back to Spring of 2020, employee retention in the non-profit has become a crisis. Individuals and communities relying on non-profits are suffering because of low employee retention. Non-profits provide a large variety of different services anywhere from food banks to domestic violence shelters. They also provide hope, which gives those in need a fighting chance. According to the National Council of Nonprofits, “staffing shortages in direct-care services mean that families and individuals cannot access life-saving support. When a non-profit closes its doors, the ripple effects cannot be ignored: communities lose access to food, shelter, mental health care, and other vital services.”

Non-profits are not able to provide proper care for the same number of clients that they once could, which is creating a longer waitlist to get access to care.

According to the National Council of Non-Profits survey, “26% of responding organizations reported having a waiting list that is more than a month long, with some organizations highlighting that clients have to wait years to receive services. While 21% of respondents acknowledged that they do not have a wait list, they clarified that it is because they are no longer accepting new clients or referrals and have turned people away at some point.”

Non-profit leaders who are experiencing high employee turnover must take action and consider implementing new tactics that can help retain key employees. To start, employees like to feel valued and appreciate being checked in on and complimented for their hard work. It is important that organizational leaders are engaging with these employees, asking them for their opinion, giving them options, and making them feel heard and supported. This can lead to building an organization that others will want to join because you have created a healthy work environment with employees who regularly share these positive examples with their friends and loved ones.

Also, employees want to be able to grow within non-profit organizations. According to Chelsea Guffy, a graduate of the Master of Nonprofit Leadership and Management program at Arizona State University, who is the Marketing and Events Manager at Homeward Bound in Phoenix, “employees who value their work want the opportunity to grow and gain more experience in their career. Start the professional development in the onboarding process. Find out the training and skills incoming staff wish to learn, and take an interest in their personal career goals.”

With respect to income, Guffy goes on to suggest “When looking at the budget, offering other types of compensation, such as bonuses for exceptional performance; perhaps an implemented paid vacation time could provide incentive for greater work performance and raise appreciation toward the organization.”

Something as small as paid time off can go a long way. It will provide your employee with more of a balanced work-life as well as decrease likelihood of burnout.

Another great way for non-profit employers to retain their employees is to hold exit interviews. Ask the employee a series of questions of what you could improve in order to provide a better experience for the next candidate. Continue to keep track of these statements and you’ll begin to see a pattern. From there, it's up to the non-profit leader to put in the action to resolve those complaints.

Additional tips for retaining employees can be found is Rancho Mesa’s RM365 HRAdvantage™ portal, along with our downloadable “Guide to Improving Retention” and online courses designed for human resources professionals that address engaging your workforce, developing successful teams and a healthy work/life balance. 

To discuss your risk management strategies or our HR portal, contact me at (619) 486-6569 or jmarrs@ranchomesa.com.    

Rise in Pure Premium Rates Impacts Tree Care Industry

Author, Rory Anderson, Account Executive, Rancho Mesa Insurance Services, Inc.

Pure premium rates are determined by the Workers’ Compensation Insurance Rating Bureau (WCIRB). The rates reflect the amount of losses that an insurance carrier can expect to pay out in claims for a particular class of business. Every year, the WCIRB submits pure premium rates to the California Department of Insurance for approval. These pure premium rates are comprised of loss and payroll data submitted to the WCIRB by all the insurance companies in California.

Each workers’ compensation insurance company has its own base rate for the 0106 Tree Pruning class code, for example. In order to establish the base rate, the insurance carrier takes the approved pure premium rate from the WCIRB and applies their factor that includes general overhead expenses, sales and marketing expenses, taxes and fees, and profit. So, if the pure premium rates are increasing, the insurance companies’ base rates are also increasing.

The 2022 pure premium rate in the tree care industry (class code 0106) has increased to $11.36 per $100 of payroll, which is roughly a 9% increase from last years $10.39. This means that the overall workers’ compensation claim activity in the tree care industry is up about 9%, and the WCIRB is recommending that the workers’ compensation insurance carriers increase their base rates to price for that increase in claim activity.

What can you do to prepare for this change and limit the impact to your tree care business?

• Lower your claim frequency and severity with a consistent, robust safety and training program, focusing in on root causes of the claims.

• Control your experience MOD with quarterly claim reviews and an aggressive return to work program.

• Maintain strong carrier partnerships and continuity with carriers that have excellent in-house claims handling.

• Benchmark your company with the rest of the tree care industry to see how you compare to your peers. As part of our proprietary TreeOne™ program, we have created a Key Performance Indicator (KPI) dashboard for the tree care industry that puts this information at your fingertips. To see how you compare with your peers, request the KPI Dashboard for your company.

For more information on rising pure premium rates, contact me at (619) 486-6437 or email me at randerson@ranchomesa.com.

Choosing the Best Surety Partner for Your Contractor Bonding Program

Author, Matt Gaynor, Director of Surety, Rancho Mesa Insurance Services, Inc.

The Rancho Mesa Bond Department is currently appointed with 25 surety carriers to support our contractor clients with all sizes of bond programs. It is key that the contractor is matched with the correct bond company to ensure timely approval for bonding. For both new and existing clients, we look at several factors to ensure you are partnering with the bond company that will provide the best single and aggregate bond program at the most competitive rate.

During our initial meeting, we will determine the program size required to make your company successful. We discuss the underwriting requirements of several surety markets to determine the best fit. Two questions that assist us in the process are:

1. What financial presentation do you have at your fiscal year end (i.e., audit, review, compilation, internal) and how often do you prepare internal financial statements?

2. What was your largest single project and what do you anticipate needing in the next two years? (Same question is asked for aggregate program.)

Then, we will discuss the bond markets that best fit your needs. Below is a general breakdown of five categories of bond placements:

1. Fortune 1000 and larger regional accounts – we work with seven large carriers with US Treasury approved limits in excess of $500,000,000. The bond company will typically require annual audited financial statement and quarterly internal statements.  

2. Accounts with a strong balance sheet, bank line of credit, audited or reviewed financial statements, and quarterly work in progress schedules – 11 middle market carriers can support these programs where an occasional bond will exceed $50,000,000.

3. Accounts with good balance sheets but also lean on the personal net worth of the owners. The largest segment of 15 carriers support these contractor accounts. 

4. Accounts were the personal net worth of the owners is stronger than the company assets and essential to support bonding. There are 5 players in this area.

5. Credit-based bond programs for contractors that only require an occasional bond under $750,000. These require the least amount of paperwork, but also the highest premium rate. Several national bond companies offer small bonding programs. 

If you would like more information on how your particular company matches up with a particular carrier, please contact me at 619-937-0165 or mgaynor@ranchomesa.com.

Duty to Defend vs. Reimbursement: A Short Comparison

Author, Sam Brown, Account Executive, Rancho Mesa Insurance Services, Inc.

You hoped this day would never come, but it’s time to notify your insurance agent of a liability insurance claim. You know you need to retain defense counsel, but who chooses the firm and pays the bills?

To answer this question, it’s important to understand the difference between “duty to defend” and “reimbursement” policy language. It is this language which determines who selects legal counsel.

Duty to Defend                                                                       

Duty to defend is a term used in insurance policies “to describe an insurer’s obligation to provide defense against claims made under a liability insurance policy,” according to the International Risk Management Institute.

Once the claim is made, the insurer selects and retains counsel for the insured, typically choosing from a panel of highly regarded law firms at negotiated rates. Appointing a law firm with whom there is a strong working relationship can slow the wearing down of policy limits and simplify the billing process between the law firm and insurance company.

Reimbursement

Conversely, a reimbursement policy form obligates a policyholder to provide and pay for its own defense, subject to the insurer’s written approval of the firm and rates. The insurer is then obligated to reimburse the policyholder for defense costs.

While selection of counsel can be preferred, a reimbursement form requires policyholders to take an active role in managing legal expenses. Policyholders should also exercise patience as the insurer conducts a detailed bill review and submits adjustments. Submitting monthly invoices to the insurer can help avoid friction.

If considering a reimbursement form, an honest assessment of your company’s balance sheet will help determine if paying the legal bills upfront and patiently awaiting reimbursement is worth the flexibility in choosing defense counsel.

If you have questions about your current insurance policies or are interested in discussing this subject further, please contact me at sbrown@ranchomesa.com or (619) 937-0175.

ELEVATE 2022: A Pre-Conference Discussion with NALP CEO Britt Wood

Rancho Mesa's Vice President of the Landscape Group Drew Garcia interviewed the National Association of Landscape Professionals (NALP) CEO Britt Wood about the upcoming ELEVATE 2022 conference event in Orlando, FL on September 18-21, 2022.

ELEVATE, previously known as LANDSCAPES, is thee event for the leading landscape and lawn care professionals. ELEVATE is designed for owners, and the individuals who will help drive their businesses forward. ELEVATE is venturing outside of its longtime Louisville, Kentucky home to Orlando, Florida, and will be heading to a new location each year.

With over 48 contractor lead sessions, ELEVATE is full of learning and the exchanging of ideas amongst industry leaders. It is NALP’s goal to have attendees become inspired, take what they have learned and apply their new knowledge to elevate their business.

A dedicated expo hall will feature industry suppliers who are showcasing the latest and greatest. There will also be time for fun with influential speakers, music entertainment, and The Wizarding World of Harry Potter™ rented out exclusively for ELEVATE attendees!

When:
September 18-21, 2022
Where:
Gaylord Palms Resort & Conference Center
Orlando, Florida
Register:
www.landscapeprofessionals.org/elevate

About NALP
The National Association of Landscape Professionals is the national trade association representing nearly 100,000 landscape industry professionals in the United States, with additional members in Canada and overseas. Member companies specialize in lawn care, landscape design and installation, landscape maintenance, tree care, irrigation and water management, and interior plantscaping. Members also include students, consultants, industry suppliers, state associations and affiliate members. For more information, visit www.landscapeprofessionals.org.

Staying Safe While the Weather Heats Up

Author, Greg Garcia, Account Executive, Rancho Mesa Insurance Services, Inc.

As temperatures continue to rise across the country, it is important for landscape companies to take proper precautions while working in the heat of summer. Heat-related illnesses are very much preventable if the proper safety steps are in place.

First, companies must implement a heat illness prevention plan and comply with local, state and federal regulations to ensure employees remain safe while working in heat.

One of the most common symptoms of heat illness is dehydration. When employees are out working in hot conditions, it is imperative the crew leader or supervisor makes the crew take regular breaks to get properly hydrated. Even if employees say they are not thirsty, a supervisor needs to insist they have some water. By the time a person feels thirsty, they’re already dehydrated. Remembering to schedule breaks throughout the work day can have a positive impact on controlling heat-related illnesses.

Another way landscape companies are staying safe as the weather heats up is to make sure they are acclimatizing their employees. This is especially important for all new hires. The best way to acclimatize these employees is to gradually increase the amount of work they are doing over a 14-day period when temperatures start to heat up. By doing this, you are allowing employees’ bodies to get used to working in such hot conditions, and thus, lowering the chances of having any heat-related illnesses.

To beat the heat, landscape companies can implement alternative schedules that allow employees to start their work day earlier. If a crew normally gets out to a job site at 8 a.m., the alternative schedule would send the crew out an hour earlier, during the hot months. This allows more work to be done earlier in the morning when temperatures have not reached the daily high. This also allows crews to get done with work an hour earlier, thus getting employees off job sites when temperatures are at their highest.

These are just some examples of how landscape companies are doing their best to prevent heat-related illnesses.

Heat illness prevention is just one of the topics available in Rancho Mesa’s RM365 Advantage Safety Star™ Program . Clients are encouraged to complete the course and implement a Heat Illness Prevention Plan that complies with OSHA standards.

The Link Between Your EMR and Primary Threshold

Author, Casey Craig, Account Executive, Rancho Mesa Insurance Services, Inc.

One of the biggest concerns for contractors is their Experience Modification Rating (EMR). If your EMR exceeds 1.00 or 1.25, contractors can be removed from bid lists and premiums can escalate quickly. Most decision makers have little idea what factors contribute to the EMR and just how claims can impact them.

All construction companies are assigned class codes that best define their operations and those class codes have expected loss rates associated with them. The more losses that occur per $100 of payroll for that class code, the larger the expected loss rate will be. So, an electrician with a much lower expected loss rate than a roofing contractor will have each claim impact their EMR more. These are variables that can have a significant impact on your company’s EMR. The variable that fluctuates amongst each company is the amount of payroll they develop in each class code. The more payroll generated, the lower your best possible EMR can be.

Consequently, as a company’s best possible EMR decreases, the Primary Threshold increases. The Primary Threshold is a cap or threshold unique to each company. The higher the primary threshold, the less that any one claim can impact your EMR. For example, a painting contractor using the 5474 class code and averaging $200,000 a year in payroll will have a best possible EMR of 83 and primary threshold of only $8,500. Each claim has the potential of contributing 40 points to their EMR. While another painter that averages $10,000,000 in payroll will have a best possible EMR of 41 and primary threshold of $49,000. Thus, the maximum any one claim can impact the company with higher payroll is just 5 points.

This certainly is a drastic difference but it makes sense as the larger company has more employees which leads to more exposure and more expected losses. The component that most companies do not know well enough is that for each company in the examples above, the WCIRB penalizes the exact same for any claim that exceeds your primary threshold. So, for the smaller company, an $8,500 claim is worth 40 points to their EMR, a $1,000,000 claim is worth the exact same amount. And, the same for the larger company with a $49,000 claim worth 5 points but any claim dollars in excess of that will not impact the EMR.

Taking this information into account, we urge our clients to focus on mitigating claims before they happen as well as doing their best to reduce contributing factors such as temporary disability. Having your carrier pay for your employees missed time leads to your EMR increasing and your premiums inevitably being higher than you would like.

Understanding and implementing a return-to-work program is extremely beneficial to your company and leads to you saving money over time. Working with your broker to better understand how to properly handle claims and making sure you are doing everything possible to keep your EMR as low as possible is vital to your company’s profitability and is very much in your control.

Everyone wants a better EMR and lower premiums but the elite contractors are active in not only preventing claims from happening but understanding how important it is to keep their employees at the workplace, or at the very least, off the couch at home.

If you would like to learn more about your firm’s primary threshold or how it is impacting your company, please do not hesitate to reach out to me directly at ccraig@ranchomesa.com or call me at (619) 438-6900. 

California Insurance Commissioner Leaves Workers’ Comp Rates Flat

Author, Jeremy Hoolihan, Account Executive, Rancho Mesa Insurance Services, Inc.

California Insurance Commissioner Ricardo Lara released a statement that he is rejecting the Workers’ Compensation Insurance Rating Bureau’s (WCIRB) recommended 7.6% increase in the workers’ compensation pure premium rates as well as the add-on to cover COVID-19 claim costs. The Commissioner also rejected a more modest 2.8% increase recommended by the Department of Insurance’s actuaries and the 1.4% decrease recommended by an independent actuary for the public members of the Bureau’s governing committee. 

Commissioner Lara’s decision was based on California’s still recovering economy. With businesses trying to recover to pre-pandemic levels and the uncertainty still of COVID-19 disruptions, the Commissioner decided to keep the benchmark rate of $1.45 per $100 of payroll. Keep in mind that the pure premium rate is only advisory as the Commissioner does not have rate setting authority over workers’ compensation rates. In fact, the rate level of $1.45 is actually 18% lower than the industry filed average pure premium rate of $1.77 as of January 1, 2022.  

“We’re working hard to get California back to business as usual as people return to work,” said Lara. “This year’s rate is on par with normal, pre-pandemic levels while still reflecting the long-term benefits of workers’ compensation reform passed by the State Legislature and signed by the Governor to reduce costs.”

With signs of a hardening market such as increased carrier combined ratios, increased cost on indemnity claims, medical inflation, and future costs of COVID-19 claims, it will be interesting to see how carriers will respond to this decision. Now, more than ever, it is critical to work with your broker and carrier to improve your risk management program so that your business is positioned well for the future.  

If you are interested in how this process works and how it can improve your bottom line, please reach out to me at (619) 937-0174 or jhoolihan@ranchomesa.com. In the meantime, Rancho Mesa will keep close tabs on what the future holds and communicate updates regularly.

Blockchain Technology May Further Digitalize the Surety Industry

Author, Andy Roberts, Account Executive, Rancho Mesa Insurance Services, Inc.

In my previous article and podcast, “Surety Industry Forced to Innovate,” I discussed a few technological advancements within the surety industry and how the ultimate goal would be issuing bonds to obligees digitally. While that is still some ways off, the technology is here and there are companies and organizations already exploring how blockchain technology may be the answer when it comes to fully digitalizing the surety industry.    

Simply put, a blockchain is a shared digital ledger that records transactions between parties and is permanent and verifiable. Applying this method to the surety industry, an electronic record (i.e., bond) would be created and shared with all parties to the bond, and any changes to that bond would be automatically added to the record so that every party who has access to it can see the history of the changes. This type of technology and the fact that it’s an immutable record, would alleviate the need for wet signatures, raised seals, and notary acknowledgements, which would increase the speed at which bonds can be issued, while also cutting some costs that are associated with issuing hard copy bonds. As mentioned, these systems are still being developed, but there are companies and surety organizations that are actively working to make this technology commonplace within the industry.   

The Institutes launched the Institutes RiskStream Collaborative, which has spearheaded the effort to introduce blockchain technology to the surety industry. 

“The power of attorney use case was the logical starting point and we’re excited to advance it forward. We are also excited that it will lead to many more downstream use cases, including Bond Signature and Verification,” said Patrick Schmid, vice president of the RiskStream Collaborative. 

Institutes RiskStream Collaborative started by piloting a program digitalizing the power of attorneys and this is now moving into its second phase. This initiative has garnered support from major surety associations like The International Credit Insurance & Surety Association, the Surety & Fidelity Association of America, the National Association of Surety Bond Producers. 

Rancho Mesa is committed to utilizing technology and strives to always be at the forefront when it comes to advancements and changes in order to help our clients stay ahead of the curve. And, while issuing bonds digitally using blockchain technology won’t be happening tomorrow, there are bond companies in Europe along with the Institutes Riskstream Collaborative that are testing the process. And, its participants view this as the future of issuing bonds, which makes it an important topic for us to address and monitor. 

For questions about technology in surety or your surety needs, contact me at aroberts@ranchomesa.com or call my direct line at (619) 937-0166.

Proposal to Include COVID-19 Claims in EMR Calculation is Denied

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

It appears the COVID-19 pandemic has finally entered an endemic stage and most companies have fully re-opened and/or are offering their employees some type of a hybrid work schedule. With this being the case, the California Workers’ Compensation Insurance Rating Bureau (WCIRB) proposed to amend the rule that excludes COVID-19 claims from the calculation of experience modifications for only claims with incident dates from December 1, 2019 through August 31, 2022. In addition, the WCIRB proposed that effective September 1, 2022, any new COVID-19 claims occurring after this date would be factored into the calculation of an employer’s experience modification rate.

The WCIRB’s rationale for this recommendation was that current circumstances have greatly changed since the rule to exclude COVID-19 claims from the experience rating were initially adopted in 2020. COVID-19 is no longer a temporary short-term phenomenon and the risk of infection will be present in the general population for the foreseeable future. 

With workplace safety standards in place, personal protective equipment and vaccinations available, employers who are diligent in protecting their employees would in turn have a lower experience modification than less safety-conscious employers in the same industry. 

Fortunately, in late June 2022, this change was not approved by Commissioner Lara, but employers should still actively try to prevent the spread of COVID-19 within the workplace by having a written COVID-19 prevention program in place and follow the requirements set by the state and local health department. 

While employers don’t have to worry that COVID-19 cases will affect their experience modification rate, they should still be concerned about the effects on their employees and bottom line. Having employees miss work because of COVID-19 puts extra strain on other employees and can effect productivity, and thus profitability.  

Rancho Mesa has updated its COVID-19 Prevention Program Template designed for California businesses. Request your COVID-19 Prevention Plan template online or contact me at sclayton@ranchomesa.com or (619)937-0167.