Workers Compensation Insurance Rating Bureau of California

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1 Workers Compensation Insurance Rating Bureau of California Workers Compensation Insurance Rating Bureau of California Report on the Study of Classification 8111(1), Plumbing Supplies Dealers Excerpt from the WCIRB Classification and Rating Committee Minutes June 14, 2005 About this Report The WCIRB prepares and presents reports to the WCIRB s Classification and Rating Committee to assist in the formulation of proposed changes to the Insurance Commissioner s regulations. Once adopted by the Classification and Rating Committee, the recommendations contained in the report are provided to the WCIRB Governing Committee and may be included in a WCIRB regulatory filing that is submitted to the Insurance Commissioner for approval. About the WCIRB The WCIRB is California's trusted, objective provider of actuarially-based information and research, advisory pure premium rates, and educational services integral to a healthy workers' compensation system. Learn more at

2 Notice This Report was developed by the Workers Compensation Insurance Rating Bureau of California (WCIRB) to assist in the formulation of proposed changes to the Insurance Commissioner s regulations. The WCIRB has made reasonable efforts to ensure the accuracy of this Report. You must make an independent assessment regarding the use of this Report based upon your particular facts and circumstances Workers Compensation Insurance Rating Bureau of California. All rights reserved. No part of this work may be reproduced or transmitted in any form or by any means, electronic or mechanical, including, without limitation, photocopying and recording, or by any information storage or retrieval system without the prior written permission of the Workers Compensation Insurance Rating Bureau of California (WCIRB), unless such copying is expressly permitted in this copyright notice or by federal copyright law. Each WCIRB member company, including any registered third-party entities, (Company) and agents and brokers licensed to transact workers compensation insurance in the state of California are authorized to reproduce any part of this work solely for the purpose of transacting workers compensation insurance and for no other purpose. This reproduction right does not include the right to make any part of this work available on any Website or on any form of social media. Workers Compensation Insurance Rating Bureau of California, WCIRB, WCIRB California, WCIRB Online, X-Mod Direct, escad and the WCIRB California logo (WCIRB Marks) are registered trademarks or service marks of the WCIRB. WCIRB Marks may not be displayed or used in any manner without the WCIRB s prior written permission. Any permitted copying of this work must maintain any and all trademarks and/or service marks on all copies. To seek permission to use any of the WCIRB Marks or any copyrighted material, please contact the Workers Compensation Insurance Rating Bureau of California at customerservice@wcirb.com.

3 Released: June 22, 2005 STUDY OF CLASSIFICATION 8111(1), PLUMBING SUPPLIES DEALERS Introduction At the request of the Western Suppliers Association (WSA) and the Pacific Southwest Distributors Association (PSDA), WCIRB staff performed a study of plumbing supply dealers to determine if Classification 8111(1), Plumbers Supplies Dealers, should be amended to provide that "showrooms" operated in connection plumbing supply dealers should be separately classified. Plumbing supply dealers specialize in the sale of pipe, fixtures, fittings and appliances to professional users. According to the industry's trade association, these firms are increasingly also engaged in the operation of showrooms for the display and sale of high-end plumbing fixtures, faucets and trim to both the retail and professional trade. It is these showroom operations that the association believes should be separately classified. History While the Classification and Rating (C & R) Committee has not reviewed the application of Classification 8111 in connection with showroom operations, the Manual Subcommittee has been asked to review Classification 8232 to determine when it is appropriate to use a store classification. Below is a summary of key decisions from these reviews: 1966: An employer appealed the WCIRB s assignment of Classification 8232, Building Material Dealers, to store operations that were performed without interchange of labor, but were not physically separated. The Committee voted to sustain the WCIRB s assignment of Classification 8232 due to a lack of physical separation & 1974: An employer appealed the WCIRB s assignment of Classification 8232, Building Material Dealers, to store operations that were performed without interchange of labor, but were not physically separated. The employer stated that industry wide changes in merchandizing methods prevent the physical separation of their operations. Upon the review of staff, the Committee voted to recommend that Classification 8017, Stores, be assigned based upon the provisions of the multiple enterprises rule. 1980: In a report to the C & R Committee, the Manual Subcommittee recommended adding an entry to the Rulings and Interpretations supplement to specify that showroom sales from samples should be assigned to Classification 8742, Salespersons Outside, when sales are made to buyers for stores (see Exhibit 1). Classification 8111(1) applies to firms engaged in the wholesale or retail sale of plumbers' supplies, including gas, steam or hot water and equipment. Plumbing supplies also include steel, cast iron, plastic, copper and transit pipe, pipefittings, valves, bathroom fixtures, bathtubs, washbasins, lavatories, water heaters, heat pumps, ventilating ducts, and hand tools. Some plumbing supply dealers sell various types of metal or plastic pipe that is stored on racks in a yard area, exclusively. Plumbing supplies are purchased from vendors, stored on racks and shelves, and sold to contractors and walk-ins of trades engaged in the construction or remodeling of industrial, commercial, and residential buildings. Typically, counter staff wait on customers, pull stock from storage, load items into customer s vehicles and accept payments for purchases. In addition to the above, plumbing supply dealers are increasingly engaged in the operation of display areas for the sale of high-end plumbing fixtures, faucets and trim to both the retail and professional trade. In connection with these operations, employees may be retained to help customers make selections, answer questions about items, pull items from stock and accept 1 WCIRB California

4 Released: June 22, 2005 payments for purchases. It is these showroom operations that the association believes should be separately classified. Showroom Operations The WSA and PSDA polled their membership to determine which employers operated "showrooms." Working from the list of employers provided by the association, staff conducted physical inspections of 25 plumbing supply dealers in an effort to better understand how the showrooms operate and to determine if the operations meet the criteria to be separately classified. As indicated below, staff found a wide variety of operations that fell within the umbrella of what the industry sought to have separately classified. Staff has summarized its review of these operation into four categories: Display Area firms maintained an area, usually a wall, where high-end plumbing fixtures were displayed for customers. There is no clear distinction between the plumbing supply customers and the plumbing fixture customers and in general the only customers walking into these stores are plumbing contractors. Employees working the counter of the plumbing supply dealership handle questions and orders. Display Room firms maintained a designated room for the display of high-end plumbing fixtures. In some cases, salespeople work from within the display room, but will also assist customers with purchases by walking throughout the store. In other cases, customers were free to view items within the display room, but there were no designated showroom employees and assistance is performed by counter employees. In general, firms with display rooms provide services to plumbing contractors and have few retail customers. Onsite Showroom firms maintained a physically separated area for the display of highend plumbing fixtures in addition to operating an onsite plumbing supply dealership. A designated staff of salespeople works within the showroom assisting architects, homeowners and general contractors with making selections and placing orders. Most items are special ordered, but occasionally a showroom customer will request an item that is available from stock. Special order items are delivered to a warehouse at the same location pending customer pick-up or delivery. Plumbing contractors purchase supplies from a counter at a separate entrance at the same location. Offsite Stand Alone Showroom firms maintained a location for the display of highend plumbing fixtures exclusively. A designated staff of salespeople works within the showroom assisting architects, homeowners and general contractors with making selections and placing orders. Most items are special ordered, but occasionally a showroom customer will request an item that is available from stock. Special order items are delivered to a warehouse at a separate location pending customer pick-up or delivery. These firms may or may not have operations at other locations where typical plumbing supply dealership operations are conducted. 2 WCIRB California

5 Released: June 22, 2005 Staff summarized the types of showrooms observed during its investigation in Table 1 below. Table 1 Summary of Plumbing Supply Showrooms Display Area Display Room Onsite Showroom Offsite Showroom Types of Showrooms Visited As shown above, staff found only five (or approximately 20% of the sample) plumbing supply dealers that operate offsite showrooms. 1 The vast majority of showrooms operated by plumbing supply dealers serve as an extension of its dealer operations. Classification Discussion During its meeting with staff, the association suggested amending the footnote to Classification 8111(1) to specify that showroom operations should be assigned to Classification 8742(1), Salespersons Outside. However, the Rulings and Interpretations supplement to the Uniform Statistical Reporting Plan (USRP) permits the assignment of 8742, Salespersons, to showrooms that display samples that are sold to buyers from stores. Clearly, the showrooms in question do not meet this criterion. (See Exhibit 1.) Staff also considered whether the showrooms in question could be separately classified as Classification 8017(7), Stores hardware retail. Based on its surveys, staff determined that showrooms serve as an extension of the dealer operations stocking a similar line of products and utilizing the same staff. Accordingly, there is simply no clear line of demarcation between the "store" and the "dealer" operations. Amending Classification 8111(1) to provide for showroom, or store employees, to be separately classified as Classification 8017(7) would result in confusion as to which employees qualify for Classification 8111(1) and which qualify for the stores classification. Staff also noted that Classification 8111(1) already describes a distinct and identifiable group of employers engaged in a relatively homogenous set of operations. As such, the payroll and loss experience generated under the classification is reflective of the industry as a whole. While altering the classification procedure applicable to the industry may result in some cost shifting among employers, the end result would not affect the overall payroll and loss experience for the industry nor would it likely have a significant impact of the overall cost of insurance for the industry. In fact, the shifting of payrolls out of Classification 8111(1) into 8017 could result in an increase in the pure premium rate for 8111(1). Finally, adding complexity to the classification process by requiring the segregation of payrolls by employee duties is not only counter to the single enterprise approach to classification, but also increases the potential for misallocation of payroll and loss experience. 1 One of the locations was not in operation at the time of the visit. 3 WCIRB California

6 Released: June 22, 2005 The above notwithstanding, staff noted that the operation of an offsite, stand-alone, showroom model, is sufficiently identifiable and distinguishable from the operations typically assigned to Classification 8111(1), and that such activities are similar to those described by Classification 8017(7). While employees working at such locations may handle faucets and other types of fixtures, they have no exposure to the operations typically associated with a plumbing supplies dealer, such as handling or storing of pipe, valves and similar items. That said, the USRP's existing classification procedures already permit such operations to be assigned to Classification 8017(7) and, consequently no modification to the USRP is needed. Conclusion There is no compelling reason to amend Classification 8111(1) to explicitly require that showrooms or display areas shall be separately classified. Indeed, in those instances where the operation of a showroom constitute a separate location having no connection to the insured's plumbing supplies dealer activities, the USRP's existing classification procedures already permit these operations to be separately classified. 4 WCIRB California

7 Released: June 22, 2005 Exhibit 1 Classification 8111(1), Plumbers Supplies Dealers California Workers Compensation Uniform Statistical Reporting Plan 1995 Supplement Rulings and Interpretations Showroom Sales Samples Only 8742(1) Salespersons outside Salespersons who sell exclusively from samples to buyers for stores (no direct sales) in a salesroom or showroom and who have no other duties of any kind in the service of the employer, except clerical work or as outside salespersons, shall be assigned to Classification 8742(1), Salespersons outside. 5 WCIRB California

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