WCIRB Ruling on Mandatory Sick Pay
Paying premium when there is no exposure to the Work Comp carrier.
Recently I was asked a very simple and timely question by one of my long time clients. The question was: “Does Workers Compensation apply to sick leave pay?” Initially, I was going to fire back a “No” response based on the way the law only applies the mandatory payment of this benefit when the employee request days off (benefit is not incurred unless the employee uses it). I wanted to be sure on this as the Healthy Workplace Healthy Family Act of 2014 (AB1522) went into effect in California on July 1, 2015.
Short version of this law is: “An employee who, on or after July 1, 2015, works in California for 30 or more days within a year from the beginning of employment, is entitled to paid sick leave. Employees, including part-time and temporary employees, will earn at least one hour of paid leave for every 30 hours worked. Accrual begins on the first day of employment or July 1, 2015, whichever is later”. Also : “An employee may use accrued paid sick days beginning on the 90th day of employment.” Annual maximum on this accrual is 24 hours or three days, which can be rolled over to another year, but the employer can cap the total maximum at 48 hours or 6 days. Benefit will only be paid if the employee requests medical leave.
I called the WCIRB on this issue and asked the very same question that my client asked, thinking it would be quick and painless and I would be correct in my assumption, and was quickly told that mandatory sick pay is to be considered included remuneration as respects to reporting of payroll, and payment of premium. While on the phone I quickly took stock and asked bluntly, “What exposure does the Workers Compensation carrier have while an insured employee is out on sick leave?” There was a short silence on the line, and the representative repeated the fact that the WCIRB does require reporting of paid sick leave as included remuneration based on the fact that the employee accrued this benefit while actually at work.
This made sense to me from a payroll benefit standpoint, but made no sense to me from an exposure stand point. If the pay is being paid by the employer only while the employee is not at work, then what possible exposure might the insuring carrier have? The answer is none, really.
Under this scenario, the insuring company is getting a bump in premium for no known exposure at the rate of three individual work shifts per year per employee. Some would say “big deal”, but let us run some numbers. I have a client with 640 seasonal employees making $11 an hour and all will qualify for the 24 hours of sick pay in the calendar year. If they all exercised their right to taking the three days (for themselves or a family member), then there is an additional premium at a $14 Class Code rate against their additional payroll of $168,960 that is to be reported to the carrier (assuming the employer has a 100 modification). This amounts to $23,654.40 in additional premium paid, per policy year, to the insuring carrier without any risk being taken by the carrier. This, in effect, will cost employers, like the one in the example, an addition $300.96 per employee per year in basically “hidden costs” or a total of $192,614.40 just in payroll and workers compensation costs.
Thank you and feel free to contact me concerning this issue.