Without a doubt, these past weeks have been challenging on many different levels, both in business and at home. Everyone is taking the necessary steps to stop the spread of this virus, which has forced companies to reduce, cease, or drastically change their operations.
Understanding how these changes can directly impact your current Workers Compensation claims, as well as your future audits, Experience Modifications, and premiums, is needed for critical future planning.
Let's take a closer look.
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During this pandemic, many employers are continuing to pay employees that are not working or working in a different capacity remotely. The question has raised as to whether this payroll must be included at the time of the audit.
There are impending rule changes by the various rating bureaus to exclude the payroll for employees not working and allocate the payroll for the others to a different lower rated classification. For most employers, this will be good news if approved.
However, for some employers, the lower payroll could negatively impact their future Experience Mod calculations increasing the factor.
Should your business take the payroll exclusion even if allowed?
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As a result of guidance issued by the CDC, health care facilities have canceled or rescheduled non-urgent outpatient visits and elective surgeries. These actions have restricted access to medical treatment for individuals with existing Workers' Compensation claims impacting their treatment plans.
Many health care facilities are using telemedicine to communicate with injured employees to ensure their continued health safety. However, the needed surgeries or physical therapy remain void, delaying the employee's healing and their return to work.
Even when facilities re-open for visits, the fear of COVID-19 may keep some injured workers away, further delaying their healing process. Their concern, anxiety, and stress can further compound the claim, and both their physical and mental health.
What does this potentially mean for you, the employer?
- The extended absence of the employee from work affecting productivity, workload, and fellow employee morale
- Re-evaluating the return to work plan
- Higher claim costs and delayed closing of the claim impacting future Experience Mod factors which directly impacts your future premiums
Although much of the above is outside of your control, it is important to have this insight when you are communicating with the employee and making business plans.
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Payroll Records
While the above payroll decisions are pending, it is imperative that employers keep the necessary records to take advantage of payroll exclusion or reallocation if approved. Your records should include the employee name, position, amount paid, and time period for the following:
- Employees paid but not working
- Employees who used the mandatory paid sick leave or paid FMLA leave
- Employees whose job function/responsibilities changed as worked remotely
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How Could this Impact your Experience Modification?
To understand the potential implications of the above, we must first revisit the critical factors of your Experience Mod calculation:
- Policy terms - under standard situations, the calculation is based on the three prior policy terms omitting the most recent
- Payroll - eligible payroll incurred for the three applicable terms
- Incurred Losses - this includes both closed and open claims for those falling within the defined policy terms
- Expected Losses - these are derived by an actuarial calculation based on your classification and payroll of the three policy terms
To simplify the calculation, if your Incurred Losses are higher than your Expected Losses, it will result in a debit mod increasing your premium. In MA, you could also have an ARAP penalty applied, further increasing your premium.
Now taking a look at the above, if determined that you can exclude payroll, this will directly lower your Expected Losses increasing the possibility that your Actual Losses will exceed the Expected Losses resulting in a debit mod.
To further put your mod at risk, delayed claims could close at a higher value or remain open with a reserve instead of closed at the time of your mod calculation.
The delayed claims to a certain extent are outside your control, but whether you take advantage of the payroll exclusion is up to you. For clients with claims during the 3-year calculation period, there is no blanket answer to what the businesses should do. It requires an analysis of the current Experience Mod and projections of the future based on different payroll scenarios.
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We are here to help!
Because this situation continues to evolve, it is crucial to communicate with each other about open Workers Compensation claims impacted treatment.
As well, once there is a final determination as to whether excluding payroll is allowed, consideration should be given to the impact on your Experience Mod vs. the premium to keep it included.
Please give us a call if you wish to discuss further.
413-243-0089
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