Rancho Mesa's Alyssa Burley and Account Executive Kevin Howard discuss the proposed 2022 dual wage thresholds for the construction industry.

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2022 Construction Dual Wage Thresholds - An Early Look

Director/Producer/Host: Alyssa Burley

Guest: Kevin Howard

Editor: Megan Lockhart

Music: “Home” by JHS Pedals, “News Room News” by Spence

© Copyright 2021. Rancho Mesa Insurance Services, Inc. All rights reserved.

Transcript

[Introduction Music]

Alyssa Burley:  Hi, this is Alyssa Burley with Rancho Mesa’s Media Communications and Client Services Department. Thank you for listening to today's top Rancho Mesa news brought to you by our Safety and Risk Management Network, StudioOne™.

Welcome back. My guest today is Kevin Howard, account executive with Rancho Mesa. Kevin specializes in risk management and insurance for solar and roofing contractors. Today, we're going to talk about the proposed 2022 dual wage thresholds for the construction industry.

Kevin, welcome to the show.

Kevin Howard: Good morning. Happy holidays, everybody.

AB: So there are 16 construction workers compensation class code pairs in California, and they're set up as dual wage classifications. And these split class codes allow the Workers Compensation Insurance Rating Bureau or the CRB and California insurers to better predict future risk and underwrite policies with more accuracy.

So Kevin, will you explain how the dual wage threshold works?

KH: Yeah, of course. An example of the dual wage threshold would be when you have a seasoned laborer with years of safety training, exposure awareness, familiarity with the job site protocol. This employee is going to be less of a safety risk compared to an apprentice who's still learning his or her trade, learning the safety techniques and all of the skills associated with that trade. As one might imagine, statistics consistently show a much higher probability of an injury occurring with the apprentice versus that seasoned veteran or journeyman. So having a dual wage threshold allows carriers to generate pricing based on an employee's experience and likelihood of sustaining an injury.

AB: So since you work with a lot of roofers, let's explore how this can directly impact the rates and pricing for the dual wage class codes for 5552 and 5553.

KH: Yeah, 5552 and 5553. There's such a dramatic delta between the two net rates, regardless of what carrier and what their base rates are. But I'm going to take one carrier, for example, for 2022 that actually has a $42 per $100 of payroll difference in a rate.

AB: Wow.

KH: You know, that's a big jump. So if you're looking at your annual budget as a roofing contractor and we have, let's just say we have Rancho Mesa roofing, and we're trying to figure out the best way for us to stay profitable.

AB: What we should charge out there in the world, what's, what's going to be our labor costs, what's going to be our insurance premiums? We have to 100% recognize that there's a huge delta between somebody that's going to be in that underclass code and then that over class code.

KH: So it's currently, in 2021, it's $27 per hour. So somebody making $27 is going to be in that lower, you know, that lower costs class code. So somebody making less than that is going to be paying that. $42 more in this, in this hypothetical example that we're talking about, if they jump that up to two more dollars to $29 per hour. We need to know way in advance that, hey, we should be giving some raises. Is there anybody on the bubble? Do we have any employees that are making $27? Do they deserve a two dollar raise because it just makes sense for us to give him or her that raise because it creates a more profitable insurance situation. So in a nutshell, that's why it's important for us to understand the dual wage system and where are these minimums going up to per industry.

AB: Yeah, and it's critical for contractors to be mindful of that wage threshold. So you kind of mentioned it earlier, but what's the delta that you're seeing between the two base rates? Is it $42 or what percentage are you seeing?

KH: It's really industry specific as far as what the delta is between the two base rates. But I did the calculation for all 16 dual wage construction class codes the average delta 61%, meaning that there's a 61% price difference for somebody that's going to be a journeyman or an apprentice based on what that dual wage split threshold is.

AB: Now you've researched the dual wage classification threshold history. Does the threshold tend to increase, decrease or fluctuate over time?

KH: Great question. Historically, if we go back to 2017, the dual wage threshold pricing has only gone up every single year, and the reason for that is minimum wage, inflation of the American dollar. All of these different factors of why we believe that to be considered a journeyman, you have to make more and more per hour to officially have that lower risk versus the higher risk.

AB:  So the trend is that the thresholds are likely to increase over time, and we can put links in the episode notes to an article about this and include tables that show all the data that we're talking about today.

KH: So looking forward, where do you see the dual wage classification thresholds moving in 2022?

AB: There's been a recommendation out there that some of the wages are going to go up as much as a five dollar increase, and that would be staggering if I was in that industry. And you can take a look at the chart that we're going to release on the weekly.

KH: Newsletter, but it's important to note that if there's a five dollar increase and you're sitting here with most of your labor pool right on that number, let's say it's $27 per hour. You know that you strategically set up your workers compensation policy so that the majority of your labor is in the older category, the journeyman category, there's a five dollar hike. We need to know about that soon. And so these would go into effect on September first of 2020 to most of them are going up around $2 as a recommendation. This recommendation goes up the ladder to the insurance commissioner. It gets stamped and then it goes into effect on September first.

AB: All right. So with the continuing labor shortage in the construction arena, employers have been doing everything possible to retain employees by offering richer benefit plans. Pay increases like you talked about merit bonuses when applicable. These recommended wage classification increases could potentially push employers to extend additional pay raises to employees in an effort to minimize workers' compensation premiums. Right, that's what you're basically saying.

KH: Absolutely. It is best for contractors who utilize any of the 16 due wage classification pairs to be aware of the potential increases way in advance so you can do the math to see if it makes sense to consider raises prior to that 2022 or 2023 renewal or any renewal that's passed September first of 2022. Rancho Mesa predicts that this will become a major factor in payroll decision. This is something that we talk about in our meetings. These numbers are important for business owners that utilize this class codes. It’s important for them and their profitability and their game planning. And so, you know, make sure if you're in one of these 16 dual wage classification pare industries, take a look. What is the recommended increase and how can we best prepare?

AB: Great. So, Kevin, if listeners have questions about the dual wage threshold, what's the best way to get in touch with you?

KH: You can email me my email address khoward@ramchomesa.com. Call my direct line, (619) 438-6874. I'm on LinkedIn, we can chat on there. You can send me smoke signals. Just kidding.

[Closing Music]

AB: [Laughs] All right, Kevin. Well, thank you so much for joining me in Studio one.

KH: Thank you. Appreciate it.

AB: This is Alyssa Burley with Rancho Mesa. Thanks for tuning in to our latest episode produced by StudioOne™. For more information, visit us at ranchomesa.com and subscribe to our weekly newsletter.