Throughout my work of consulting with businesses in all aspects of workers compensation, I’m always asked a basic question about workers compensation payroll so I thought I’d elaborate for all. Most of us know that workers compensation premium is a function of rates defined by insurance carriers (and approved by various state insurance departments) and payroll by classification code. Because this is relatively straight forward, it’s easy to gloss over “what is considered ‘payroll’ for workers compensation purposes?”
Incorrect payroll has a direct impact on workers compensation premium, and it’s critical that the correct payroll be used. Under-report payroll and you’ll have a large, nasty audit bill hit you 3 months after the policy expires (100% due in full, by the way); over-report payroll, and you drag down your cash flow throughout the year, and then wait for your money back at the audit.
Below is a comprehensive list of the inclusions and exclusions for “payroll” as defined by the National Council on Compensation Insurance (NCCI):
The Florida Office of Insurance Regulation (OIR) announced yesterday the approval of a 14.5% rate increase effective December 1, 2016 for workers’ compensation insurance rates in Florida.
Proposed by the National Council on Compensation Insurance on May 27th, the increase comes after 13 years of declines in rates. The increased rates only apply to new and renewal workers’ compensation policies after December 1st, but there is no change in rates for current, in-force policies.
The recommended change is a result of two major court rulings: one in April where the Florida Supreme Court ruled the mandatory attorney fee schedule for workers’ compensation was unconstitutional, and a second state Supreme Court ruling in June that ruled the 104-week statutory limitation on temporary total disability benefits was unconstitutional.
Click here to read the full press release from the Office of Insurance Regulation.
If you have any questions or concerns regarding this information, please contact your Account Manager. We are here to assist you and are happy to answer any questions you may have.
On April 29, 2016, the Florida Supreme Court issued the ruling on the Castellanos vs. Next Door Company case. The issue in Castellanos was whether Section 440.34, Florida Statutes (2009), which mandates a conclusive fee schedule for awarding attorney’s fees to the claimant in a Workers’ Compensation case, was considered to be unconstitutional. The Court concluded the mandatory fee schedule to be unconstitutional under both the Florida and United States Constitutions. Ultimately, this decision allows the Judge of Compensation Claims (JCC) to award reasonable attorney’s fees at their discretion without regard to the statutory schedule.
On June 9, 2016, the Florida Supreme Court issued another important decision. In Bradley Westphal vs. City of St. Petersburg, the issue was whether Section 440.15(2)(a), Florida Statutes (2009), which cuts off disability after 104 weeks to a worker who is totally disabled and incapable of working but has not yet reached maximum medical improvement, was constitutional. In its ruling on Westphal, the Florida Supreme Court concluded “this portion of the workers’ compensation statute is unconstitutional under Article 1, Section 21, of the Florida Constitution, as a denial of the right of access to courts, because it deprives an injured worker of disability benefits under these circumstances for an indefinite amount of time – thereby creating a system of redress that no longer functions as a reasonable alternative to tort litigation.” They further opined “the proper remedy is the revival of the pre-1994 statute that provided for a limitation of 260 weeks of temporary total disability benefits.” See 440.15(2)(a), Florida Statutes (1991).
The full Westphal ruling can be accessed through the following link: http://www.floridasupremecourt.org/decisions/2016/sc13-1930.pdf
Our previous article detailing the case’s background can be reviewed here: Westphal v St. Petersburg: Will Workers’ Compensation Rates Increase Because of This Court Case?
So what does this mean? Since Section 440.15(2)(a), as enacted, has been deemed unconstitutional, the court essentially revived the pre-1994 version of the statute. Payment of temporary benefits can now extend to 260 weeks – two and a half times more eligible benefits than the previous 104 week maximum – assuming the worker is totally disabled, incapable of working and has not yet reached maximum medical improvement.
Combined with Castellanos, the Westphal decision represents yet another attack on the constitutionality of the Florida Workers’ Compensation Statutes. As with Castellanos, we expect Westphal to adversely impact claim costs and prolong the life cycle of many workers compensation claims. Increased litigation frequency, and corresponding costs for both defense attorneys and in fees owed to claimants’ attorneys (stemming from Castellanos), are also anticipated, if not inevitable.
The NCCI completed an initial evaluation of the impact Castellanos was expected to have on Florida’s Workers’ Compensation system costs, after which they submitted proposed rate increases to the OIR. Westphal demands a similar analysis and inclusion in the cost impact and rating adjustment processes. Together, system costs and associated premium increase recommendations from NCCI to the OIR are expected to be substantial.
More detail can be found on the proposed Workers Compensation rate increase from our previous article titled NCCI Proposes Mid-Year Florida Workers Compensation Rate Increase.
The impact on Florida business from the Florida Supreme Court’s ruling in the Castellanos vs. Next Door Company is starting to take shape. On May 27, 2016, the National Council on Compensation Insurance (NCCI) – the entity that proposes premium rates in Florida – submitted a recommendation to the Office of Insurance Regulation (OIR) for an increase in premium rates due to the impact of the ruling as well as a separately ratified bill which updates the Florida WC Health Care Provider Reimbursement Manual.
The NCCI’s proposal is for a rate increase of 17.1% which would be effective on August 1, 2016. The increased rates would not only apply to new and renewal WC policies after the August 1, 2016 effective date, but it’s also proposed to apply, on a pro-rata basis, to all existing policies through the remainder of their respective terms.
What the proposed rate increase does not address are the unfunded liabilities this ruling created. The unfunded liabilities encompass those open claims which are now subject to the ruling, but for which no additional premium can be charged; i.e. insurance companies cannot go back to previous policies and retroactively charge more premium for open claims. Because of the unfunded liability issue, the scope of which the NCCI is still estimating, additional rate increases should be anticipated in future, annual NCCI proposals to the state.
For information regarding the ruling refer to our previous article titled Supreme Court Ruling on Attorney Fees in Workers Compensation. If you’d like a copy of the summary proposal issued by the NCCI, it can be obtained here: NCCI Proposes Rate Increase.
Client Alert: Castellanos vs. Next Door Company
On April 28, 2016, the Florida Supreme Court issued its long awaited ruling on the Castellanos vs. Next Door Company case. This case addressed attorney fees involving Workers’ Compensation insurance, challenging the current “limitation” of attorney fees for attorneys involved with Workers’ Compensation cases. Essentially, the court has ruled that the current mandatory fee schedule is unconstitutional and should return to the pre-2009 ‘reasonable standard’ as addressed by the Judge of Compensation Claims (JCC). The full ruling can be accessed here.
Castellanos vs. Next Door Company Ruling
How will this affect you as an employer?
Most everyone believes this decision will likely increase litigation, result in prolonged litigation, add substantially higher cost of attorney fees to many more Workers’ Compensation claims, and lead to increased settlement values and reserves. Increased claims costs will simply drive up Workers’ Compensation premiums.
Because Section 440.34 as enacted is unconstitutional, the JCC can adjust a fee up or down depending on factors such as time, labor, difficulty, customary fees, amount of benefits, etc. This may result in prolonged litigation, substantially higher attorney fees, and increased settlement values. This affects all “open” claims and/or claims where the statute of limitations has not run. Bottom line, we’re back to where we started in 2003 when the Florida legislature specifically sought cost-cutting measures by enacting the attorney fee schedule in the first place.
Based on this ruling, while the full impact is unknown, the NCCI (the entity that recommends premium rates to the state) has advised they are evaluating the financial impact of this decision on Florida’s Workers’ Compensation costs and subsequently, workers’ compensation premiums. They are expected to recommend a special rate increase which, if approved, would take effect this summer.
What can employers do?
It will be critical that employers report accidents timely, fill out wage statements completely and accurately, and provide complete information to the carrier. Even seemingly small oversights or delays could generate fee entitlement and have significant financial impact. Our commitment to our partnership, and the experience , dedication, and expertise from our Claims Advocate team will be instrumental in monitoring and assisting you in managing your Workers’ Compensation claims process.
Insurance carriers and defense attorneys continue to assess the impact of this decision and will provide us additional information as available. We will, of course, continue to keep you informed of any further implications or developments and how you might get involved in efforts to craft a curative solution. It is probably premature to contact legislators until the business community and the insurance industry can frame the problem and the solution in a compelling message.