Rancho Mesa's Alyssa Burley and Account Executive Matt Gorham discuss the impending dual wage threshold increase.

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

Transcript

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 everyone. My guest is Matt Gorham, Account Executive with Rancho Mesa. He specializes in risk management for HVAC and plumbing contracts. Today, we're going to talk about the impending dual wage threshold increase. Matt, welcome to the show.

Matt Gorham: Yeah, glad to be here, Alyssa, thanks for having me.

AB: Now, this is your first podcast episode in StudioOne. Is this the first time you've ever been on a podcast?

MG: It is.

AB: Well, we're happy to have you.

MG: Glad to be here. Thank you.

AB: So, in an effort to keep up with wage inflation, California's Workers' Compensation Insurance Rating Bureau, or the WCIRB, has recommended increases to all 16 construction dual wage thresholds. But before we dive in, will you briefly explain the dual wage threshold?

MG: Yeah, important to know that otherwise this conversation doesn't really have a lot of meaning. But the dual wage threshold is a mechanism that carriers use to evaluate risk of employee injury. So there's a correlation of an average hourly wage of an employee with their level of experience. As an example, employees with more experience, typically command a higher wage and they're less likely to get injured on the job because they've got more familiarity with job site protocol, as well as having been through more safety trainings. And the opposite holds true as well with employees that have less experience, typically commanding lower wages. while also being less familiar with job site and safety protocols. So those employees with lower wages and less experience are more likely to be injured at work. This difference in risk leads to difference in cost for insurance premiums. And the reason we refer to it as a dual wage threshold is there's a specific dollar amount that differentiates between higher wage earners and lower wage earners. These higher wage earners will cost their employers comparatively less in work comp premium.

AB: All right, so that makes sense. If the dual wage threshold increase is approved, which we think that it will be, what does that mean for those California employers in the construction industry that have that dual wage threshold?

MG: Yeah, like you mentioned, this does still need to receive final approval, but it's widely anticipated that that's going to be more or less a formality. And so this will impact all policies that go into effect beginning on September 1st, 2024. And ultimately, the impact of it is that it's going to drive up insurance premiums for those that are unprepared. And it is going to affect, like you said, all 16 construction class codes, not just plumbing and HVAC, but roofing, framing, masonry, concrete work, and every other one.

AB: Okay, will you walk us through a real scenario for how the increase can impact an employer who’s not aware of how this works?

MG: Yeah, that's a great question. So in order to understand the impact of the change, it's important to first understand how it works currently. So let's consider the example of a plumber where the dual wage threshold is currently $31 an hour. Using base rates for one carrier, a plumber earning $30 an hour under the threshold will cost their employer $9 .31 cents per $100 of payroll while a plumber earning $10 an hour, the higher-wage threshold, will cost their employer $4 .35 per $100 of payroll. That's a big difference for really a small change in what the wage difference is. So if the proposed increase goes into effect, the plumber paid $31 per hour will no longer be considered at the high-wage threshold, and would then cost their employer the same premium as the plumber earning $30 an hour. So that change means that the employer would now be paying more than double the cost in work comp premium for the same employee.

AB: All right, so it may be time to consider some wage increases for those good employees that might deserve it, right? Because we can save a little bit of premium for our insurance. So why is the WCIRB looking to increase that threshold of $31 or whatever the dollar amount happens to be? for that particular artisan class code.

MG: Yeah, great question. Really like you pointed out earlier, it has to do with inflation. So since the last time the WC IRB suggested an increase to the dual wage thresholds and really way back in December of 2021, inflation and labor shortages have continued to drive up wages in the construction industry. According to the St. Louis Fed, average hourly earnings in construction have increased from $33.60 to $37.53. That's more than 11 % in that time. So while wages are going up, the experience of employees isn't keeping pace, so it's leaving insurance carriers exposed. So to address the disparity, the proposed threshold increases from the WCRB are ranging from, say, $1 for plumbing, automatic sprinkler, concrete work and painting or waterproofing all the way up to $4 for sheet metal and HVAC work.

AB: Okay, so what do you recommend business owners do to get ahead of this change if it's approved?

MG: It's a great question and you alluded to it earlier that it might be time for certain raises or awarding employees with raises and it may seem counterintuitive, but there can be relative cost savings for strategic raises. But ultimately, the overhead costs are likely going up either way and quality employees are already in short supply, so not only could those raises like mentioned offer relative savings, but it could actually strengthen the loyalty from your team. So ultimately business owners should consider whether it's more beneficial to award employees with those raises or to pay more on insurance premiums.

AB: Yeah, so it could be a win -win for everyone It's so important for California employers in the construction industry to familiarize themselves with how the dual wage threshold works and how to plan for it accordingly. So Matt, if listeners have questions about their dual wage threshold or other risk management concerns, what's the best way to get in touch with you?

MG: They can reach me at 619-486-6554 or mgorham@ranchomesa.com.

AB: Alright, well, Matt, thanks for joining me in StudioOne and I'm excited that we got to be your first podcast.

MG: Thanks for having me here, and thanks for making it easy, and thanks for letting me share.

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.