Rancho Mesa's Alyssa Burley, Media Communications & Client Services Manager, and Account Executive Casey Craig discuss wage inflation’s impact on workers’ compensation.

Show Notes: Subscribe to Rancho Mesa's Newsletter.

Director/Producer/Host: Alyssa Burley

Guest: Casey Craig

Editor: Alyssa Burley

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

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

Transcript

Alyssa Burley: Hi, this is Alyssa Burley with Rancho Mesa 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 everyone. My guest today is Casey Craig, Account Executive with Rancho Mesa. He specializes in risk management and insurance for drywall, plaster, and painting contractors.  Today, we’re going to talk about wage inflation’s impact on workers’ compensation. Casey, welcome to the show.

Casey Craig: Great to be back.

AB: Now, this isn’t the first time we’ve mentioned wage inflation on this podcast, and I’m certain that it won’t be the last. So, I’m glad that we’re going to dig a little deeper into this topic, especially after episode 159 with our colleague Kevin Howard. He recently wrote an article about the anticipated wage threshold increases coming in 2022, as a result of wage inflation.

So Casey, will you give us a synopsis of the problems you’re seeing as companies implement substantial hourly wage increases?

CC: Yeah, over the past few months, I’ve been asking my painting, drywall and plastering contractors if there’s enough work to bid on and are you running into any problems getting that work done.

There’s still talk of material shortages or hiked up prices, but for the most part, the most common answer I hear is there’s a substantial amount of work to bid on, but the labor shortage limits the possibility of growth. So, they’re having to increase hourly wages to not only attract new employees but also to retain their experienced ones.

AB: Besides the obvious increase in payroll costs, what other issues are your clients experiencing?

CC: Paying an employee higher wages creates several issues. Employees talk and let co-workers know when they get a raise leading to those employees asking for raise themselves. Some employees may also try to leverage another company’s higher wages into an undeserved raise. So, the combination of a labor shortage and overpaying employees may result in hyperinflation, leading these employees to believe their value has skyrocketed.

AB: And, this could be a problem for workers’ compensation carriers if they don’t increase the dual wage thresholds.

CC: Exactly. The wage threshold is meant to separate historically safer employees from newer employees who are less safety conscious. These increases in payroll are pushing less skilled employees into the higher wage category, resulting very likely in higher claim frequency. This is leading to a smaller gap in workers’ compensation rates between the above and below class codes for each industry.

AB: And how is this affecting your clients?

CC: Well, for example, a painter of mine had a separation of 56% from 5474 to 5482, that’s painters making above or below $28 an hour for their 2021 renewal. For 2022, they’re only looking at a difference of 46%. From the carrier’s perspective, more losses are expected in the 5482, which is above $28 than the previous year, leading to a rate increase in that class code.

I wish I could say that this was industry specific, but from conversations with multiple brokers at Rancho Mesa, most industries are dealing with these same employment issues and have struggled to find a meaningful solutions.

AB: Do you think increasing the wage threshold will help employers mitigate the increase in wage inflation?

CC: It is possible these dual wage threshold increases will help restore balance by bringing the less skilled employees back into the proper class code, securing the lower rates in the over class code. Employers have shared that these threshold increases are hurting them, but should assist with workers’ compensation premium savings for the truly elite seasoned workers. Carriers have these thresholds to help you differentiate experience from inexperience.

AB: So, employers should take into consideration their class code wage threshold and evaluate the wages of the employees who truly should be considered in the over group and those who shouldn’t. There’s a rebalancing that needs to happen between wages and workers’ compensation premium savings that each employer will have to decide on there own.

Knowing wage inflation is here and workers’ compensation thresholds are likely to change, what do you recommend employers do today to prepare?

CC: Well, this is a developing issue that we are trying to stay ahead of. The time is now to meet with someone who specializes in your industry and help you formulate a strategy for 2022 to mitigate these impacts and improve your profitably.

AB: Casey, if listeners have questions about wage inflation impacting their workers’ compensation, what's the best way to get in touch with you?

CC: I can be reached at (619) 438-6900 or ccraig@ranchomesa.com.

AB: Casey, thank you for joining me in StudioOne™.

CC: Thanks for having me again Alyssa.

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