Classification and Rating Committee

Transcription

1 Meeting Agenda Date Time Location Staff Contact March 18, :30 AM WCIRB California Brenda J. Keys 525 Market Street, Suite 800 San Francisco, CA 525 Market Street, Suite 800 San Francisco, CA Fax Released: March 5, 2014 To Members of the Classification and Rating Committee, WCIRB Members and All Interested Parties: This meeting is Open to the Public. I. Approval of Minutes Meeting held January 7, 2014 II. Unfinished Business III. New Business Page A. CR : Classification Study 5606, Contractors Executive Supervisors 3 B. CR : Classification Study Hospital Industry 16 C. CR : Draft Report on Mobile Food Vending Operations 23 D. CR : Draft Report on Classification Enhancements to the California Workers Compensation Uniform Statistical Reporting Plan IV. Matters Arising at Time of Meeting V. Next Meeting Date: May 13, 2014 VI. Adjournment Antitrust Notice As members of the Workers Compensation Insurance Rating Bureau of California, you are bound, when involved in meetings or other activities of the WCIRB California, to limit your actions (and discussions other than social ones) to matters relating to the business of the WCIRB California. Matters that do not relate directly to WCIRB California business should be avoided. Members should particularly avoid discussions or conduct that could be construed as intended to affect competition (or access to markets). Thus, as members, you should not discuss or pursue the business interests of individual insurers or others, including, in particular, the plans of individual members involving, or the possibility or desirability of (a) raising, lowering, or stabilizing prices (premiums or commissions); (b) doing business or refusing to do business with particular, or classes of, insurers, reinsurers, agents, brokers, or insureds, or in particular locales; or (c) potential actions that would affect the availability of products or service either generally or in specific markets or locales. 1

2 Released: March 5, 2014 Notice The information in this Agenda was developed by the Workers Compensation Insurance Rating Bureau of California (WCIRB) for the purpose of assisting the WCIRB Classification and Rating Committee. The WCIRB cannot make any guarantees if this information is used for any other purpose and the WCIRB shall not be liable for any damages, of any kind, whether direct, indirect, incidental, punitive or consequential, arising from the use of or reliance upon this information for any other purpose. WCIRB California 525 Market Street, Suite 800 San Francisco, CA Tel Fax 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) are authorized to reproduce any part of this work solely for the following purposes in connection with the transaction of workers compensation insurance: (1) as necessary in connection with Company s required filings with the California Department of Insurance; (2) to incorporate portions of this work, as necessary, into Company manuals distributed at no charge only to Company employees; and (3) to the extent reasonably necessary for the training of Company personnel. Each Company and all agents and brokers licensed to transact workers compensation insurance in the state of California are authorized to physically reproduce any part of this work for issuance to a prospective or current policyholder upon request at no charge 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 Web site or through any computer or electronic means for any purpose. 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, 525 Market Street, Suite 800, San Francisco, California

3 Item CR Classification Study 5606, Contractors Executive Supervisors 5606, Contractors construction or erection executive level supervisors Executive Summary Objective Several organizations 1 representing the construction and erection industry asked the WCIRB to review Classification 5606, Contractors construction or erection executive level supervisors, and consider: 1. Altering its scope to include, in addition to third level supervisors, any supervisors that do not perform actual construction operations or directly supervise actual construction operations; 2. Removing the requirement that the classification may only be assigned upon WCIRB approval; and 3. Amending the classification for clarity and to provide direction as to how related operations are classified. WCIRB staff reviewed the current scope of Classification 5606 and the potential impact of both broadening its scope and removing the existing requirement that it only be assigned upon written approval by the WCIRB. Findings Based upon a review of the classification procedures applicable to Classification 5606, the WCIRB determined that: 1. Second level supervisors, while not directly engaged in actual construction operations, have duties that are qualitatively different from the third level or executive supervisors currently contemplated under Classification Although executive supervisors typically work at a permanent office location and, as required, travel to job sites to exercise supervision through second level supervisors; second level supervisors are usually stationed at a job site or travel among multiple job sites to exercise supervision through first level supervisors. 2. Broadening the scope of Classification 5606 would result in the shifting of payrolls and losses from various construction classifications into Classification Based upon the experience developed in other jurisdictions where Classification 5606 includes all non-working supervisors, this would likely result in an increased advisory pure premium rate for Classification Further, shifting the better experience from high wage construction classes into Classification 5606 would also likely increase the rates of the high wage, dual wage construction classifications. 3. The requirement in the California Workers Compensation Uniform Statistical Reporting Plan 1995 (USRP) that the assignment of Classification 5606 must be confirmed by specific written approval from the WCIRB was established to help ensure that payrolls and losses belonging in the construction classifications are not erroneously reported under Classification This 1 The organizations are the Associated General Contractors of California, Construction Employers Association, United Contractors, and the California Professional Association of Specialty Contractors. 3

4 requirement is viewed as a critical element in maintaining the ratemaking structure of Classification That said, at an implementation level, it is not practical for the WCIRB to provide written approval for each and every assignment of Classification 5606 on a premium audit. Further, the WCIRB s other data quality initiatives have proven to be an effective means to validate the accuracy of reported data. 4. Many of the concerns raised by the construction organizations that requested this review can be addressed by amending Classification 5606 for clarity. In view of the above findings, the WCIRB recommends the following: 1. Classification 5606 should not be amended to include second level supervisors; and 2. Amend Classification 5606 in the USRP effective January 1, 2015 to: a. Remove the requirement that the assignment of Classification 5606 must be confirmed by specific written approval from the WCIRB; and b. Further clarify its scope and application and to provide direction as to how related operations are classified. 4

5 Introduction Several industry trade groups asked the WCIRB to conduct a study of the scope and application of Classification Specifically, the WCIRB was asked to consider the merits of amending Classification 5606 to (1) permit the use of Classification 5606 when one level of supervision exists between the executive supervisor and trade workers, which is consistent with classification procedure used by all other jurisdictions, (2) remove the requirement for WCIRB approval to assign Classification 5606, and (3) amend Classification 5606 for clarity and to provide direction as to how related operations, including fee-based engineering work and project estimating, are classified. Classification History Following is a summary of the history of Classification 5606: 1917: Classification 5606 was established. 1921: Classification 5606 was amended to align with the NCCI s phraseology for 5606 which read: Contractor: Supervising employees, not superintendents or foremen in direct charge of work which is covered under a single Manual classification. Classification 5606 is available only to owners or to contractors who undertake contracts which include various classifications, and who may perform either the entire work or only a part, subletting the remainder. 1950: Classification 5606 was amended to include the wording exercising supervision through superintendents and foremen no direct supervision. 1960: The Classification and Rating (C & R) Committee examined several examples of how the classification was being misapplied, and determined that Classification 5606 covers only the executive supervisor who goes into the field to confer in a strictly supervisory capacity with the job superintendent and foreman and without any duties which would render him as an operations superintendent. 2 Following this change, the WCIRB conducted a review of all policies and USRs that reported Classification 5606 and as needed, obtained corrections to policies and unit statistical reports (USRs). 1962: The requirement for WCIRB approval to assign Classification 5606 was established to facilitate the proper administration of Classification 5606 and to ensure the integrity of reported data. 1977: The requirement that executive supervisors could not be permanently situated at a job site was eliminated, and an entry was added to the Advisory Rulings and Interpretations companion (R & I) to the USRP to provide guidance for assigning Classification : The C & R Committee approved new classification and inspection procedures for the assignment of Classification 5606 in situations where: (1) the employer or insurer indicates that all construction or erection work is subcontracted; 2 Excerpt from WCIRB Circular #733. 5

6 (2) the latest Unit Statistical Report (USR) confirms that no payroll is being reported in any construction or erection classification; and (3) there is no other reason to question the applicability of the classification. Other circumstances were also outlined where a physical inspection may not be necessary. 2004: Classification 5606 was amended to clarify that two separate and distinct levels of supervision are required below the executive supervisor. 2006: As a result of a comprehensive study of the scope and application of Classification 5606, the classification was amended to: (1) clarify the scope of the classification by incorporating a description of the three levels of supervision into both the classification s phraseology and the Special Industry Classification Procedures for Construction or Erection Work, and (2) specify that a single employee s payroll may not be divided between 5606 and any other classification. 2014: As part of the WCIRB s review of the R & I, Classification 5606 was amended to: (1) include management level employees such as safety managers, project managers and engineers who are not in the direct chain of command over construction operations but whose duties include walking through a construction site during the construction phase, provided the insured retains two levels of supervision over the construction crew(s) or where all operations have been subcontracted to licensed subcontractors, and (2) reference the relevant provisions of Part 3, Standard Classification System, Section IV, Special Industry Classification Procedures, Rule 2, Construction or Erection Work. Description of Operations Classification 5606 is shown below. 6

7 CONTRACTORS construction or erection executive level supervisors no direct supervision division of a single employee s payroll with any other classification is not permitted This classification may be assigned only in connection with the construction or erection classifications listed in Appendix I, Construction and Erection Classifications, and must be confirmed by specific written approval from the WCIRB. This classification applies to executive level supervisors as defined in Part 3, Standard Classification System, Section IV, Special Industry Classification Procedures, Rule 2d, Executive Level Supervisors. This classification also applies to executive level supervisors when all construction operations are subcontracted to licensed contractors and no payroll is developed under any construction classification. In such instances, executive level supervisors exercise control exclusively through licensed subcontractors. This classification also includes management level employees such as safety managers, project managers and engineers, who do not supervise construction operations but whose duties include walking through a construction site during the construction phase, provided the employer retains two levels of supervision over the construction crew(s) or where all operations have been subcontracted to licensed subcontractors. Otherwise, such employees are miscellaneous employees and shall be classified in accordance with Part 3, Section IV, Rule 2c, Miscellaneous Employees (Construction or Erection). On jobs where all construction operations are subcontracted to licensed subcontractors, Classification 9015(1), Building Operation all other employees, shall apply to job site cleanup and warranty repair conducted after construction is completed. Also refer to Part 3, Section IV, Rule 2, Construction or Erection Work Classification 5606 is unique among all standard classifications in that its assignment is subject to WCIRB approval. The mandate for WCIRB approval was established in 1960 to facilitate the proper administration of Classification 5606 and to ensure the integrity of reported data. This classification applies to executive supervisors in the construction or erection industry who have overall managerial responsibility for projects and do not exercise direct supervision. This may include arranging for the procurement of materials or subcontractors, maintaining construction timetables, jobsite visits to keep track of job progress, consulting with clients or architects/engineers and travelling to and from headquarters and job sites. To assign Classification 5606 where the construction contractor has employees performing construction activities, two levels of supervision must exist between the executive supervisor assigned to Classification 5606 and the trade worker. These levels of supervision are defined in the USRP at Part 3, Section IV, Rule 2d, Executive Level Supervisors, in pertinent part, as follows: (1) First level supervisors generally work at a job site with a single crew of workers performing a single trade and do not travel between concurrent job sites to supervise different crews. While first level supervisors may engage in construction activities alongside the crew, as supervisors they have the authority to direct and control the crew s work. This control includes training, evaluating, and disciplining crewmembers. Employees who assist with training or leading a crew, but who do not have the authority to direct and discipline crewmembers, or are not accountable for the work performed by the crew, are not considered first level supervisors. (2) Second level supervisors generally have broad authority over the work crews at one or more job sites. Second level supervisors direct and control the work of first level supervisors. The duties of second level supervisors are exclusively supervisory in nature. 7

8 In cases where all construction work is subcontracted to licensed contractors, the executive supervisor is assigned to Classification The executive supervisor coordinates the activities of subcontractors, checks the quality of materials used, determines acceptability of completed work, and serves as a liaison with owners of construction projects. Administration of Classification 5606 by the NCCI and other Data Collection Organizations (DCO) NCCI s Basic Manual for Workers Compensation and Employers Liability Insurance includes Classification 5606, which reads as follows: Code 5606, Contractor Project Manager, Construction Executive, Construction Manager or Construction Superintendent. This classification is available only to project managers, construction executives, construction managers, or construction superintendents having administrative or managerial responsibility for construction or erection projects. When determining eligibility, it is the job duties, and not the job titles, that are the main consideration. 1. Project Manager, Construction Executive, Construction Manager, or Construction Superintendent are defined as those persons exercising operational control indirectly through full-time job supervisors or foremen of the employer. 2. When exercising control through a subcontractor, each subcontractor must have a job supervisor or foreman at the specific job site in order to permit the assignment of this classification. The supervisor or foreman of the subcontractor may manage one site or multiple sites. If any of the subcontractors do not have a job supervisor or foreman at any job site visited by the construction executive, all of the payroll of the construction executive for that policy year is assigned to the highest rated construction class code applicable. A sole proprietor or owner/operator with no employees, working as a subcontractor for the insured, would prevent the assignment of this classification to a construction executive because the subcontractor does not have the required job supervisor or foreman. 3. This code does not apply to any person who is directly in charge of or who is performing any degree of actual construction work. Such person must be assigned to the classification that specifically describes the type of construction or erection operation over which they are exercising direct supervisory control provided separate payroll records are maintained for each operation. Any such operation for which separate payroll records are not maintained must be assigned to the highest rated classification that applies to the job or location where the operation is performed. 4. Code 5606 is not available for division of a single employee s payroll with any other classification. As provided above, NCCI applies Classification 5606 to project managers, construction executives, construction managers, or construction superintendents who have administrative or managerial responsibility for construction or erection projects. Employees assignable to Classification 5606 exercise operational control indirectly through full-time job supervisors or foremen of the employer. Classification 5606 does not apply to any person who is directly in charge of or who is performing any degree of actual construction work. However, unlike California, the use of Classification 5606 in NCCI states and other jurisdictions including Michigan, New Jersey, New York and Wisconsin, does not require two levels of supervision between the executive level supervisor and the trade workers. Further, insurers in these states are not required to obtain approval from a rating organization to assign Classification

9 Like California, the NCCI manual emphasizes that it is the job duties, not titles, that are the main considerations to determine eligibility to assign Classification Classification Analysis Levels of Supervision The USRP requires that the second level supervisor not perform any degree of actual construction work during the policy period. Representatives of the construction and erection industry maintain that because the duties of second level supervisors are required to be exclusively supervisory in nature, the duties of the second level supervisor might be comparable to those of the third level supervisor who qualifies for assignment to Classification Construction industry representatives also maintain that California s three tier structure is more difficult to administer than the two tier structure used in other jurisdictions. Second Level Supervisors vs. Third Level Supervisors Inspection Report Review Second level supervisors: A review of WCIRB inspection reports reveals that the title of superintendent is most often used to identify the second level supervisor; however, other job titles, such as assistant superintendent, site manager, general foreman, lead foreman and construction manager are used as well. Second level supervisors directly supervise one or more first level supervisors who, in many cases, perform construction work along with the crews they supervise. Second level supervisors are usually stationed at a job site or travel among different job sites, overseeing the activities of one or more first level supervisors. The duties of these employees are supervisory in nature and they have broader supervisory responsibilities than the first level supervisors, who are typically identified as foremen. Second level supervisors may direct all operations at a job site; however, large projects usually require more than one supervisor, with each overseeing specific trades. Third level supervisors: Individuals assignable to Classification 5606 are frequently referred to as project managers although many other titles, such as executive supervisor, construction executive, construction manager, superintendent and project superintendent, are used. These employees frequently work at a permanent office location away from a job site although some third level supervisors have temporary offices at the job site. In general, the third level supervisor is the contractor s or project owner s representative for the project. Third level supervisors have varying responsibilities, such as making sure the completed work is acceptable, handling permit issues, working with engineers and architects on project specifications, hiring subcontractors, coordinating the work of subcontractors and similar duties. The third level supervisor exercises supervision through second level supervisors. Accordingly, they do not directly supervise any construction activities and they are two levels above any hands-on construction work. WCIRB inspection reports reveal that third level supervisors regularly meet with higher level, administrative constituents of the construction projects including, but not limited to architects, engineers, and project owners. Third level supervisors generally act as a liaison between the construction firm and the project owner(s). While second level supervisors may also engage in similar types of meetings, the review of inspection reports found that second level supervisors primarily meet with the third level supervisor to relay information on the status of the project. The second level supervisor, in turn, acts as a liaison between the foremen (representing the working crews) and the third level supervisor (5606). While both second level and third level supervisors do not perform hands-on construction work, based on the review of inspection reports, the main distinction between these two levels is that (1) third level (Classification 5606) supervisors often work from a permanent, off-site office whereas second level supervisors are commonly stationed at job sites, and (2) third level supervisors have broader responsibility for the success of the project than their second level counterparts. Accordingly, in comparison to second level supervisors, third level supervisors are most likely exposed to less of the operative hazards of construction work as they typically spend less time at the job site and are at least one level removed from the workers engaged in actual construction work. 9

10 WCIRB Approval of Classification 5606 The USRP states that the assignment of Classification 5606 must be confirmed by specific written approval from the WCIRB. If the WCIRB receives a policy that endorses Classification 5606, but the classification has not been approved for that employer, the WCIRB advises the insurer that WCIRB approval must be obtained in order to report payroll and losses under Classification The insurer is further advised to contact the WCIRB's Customer Service Department for guidance on how to request written approval from the WCIRB. When a request is received and the attending description of operations indicates the employer retains construction employees and the requisite levels of supervision, the WCIRB initiates a classification inspection. If the description of operations indicates that the employer subcontracts all construction operations, the WCIRB may approve the assignment of Classification 5606, without the need of an inspection, with the proviso that Classification 5606 is only being approved under the assurance that the policyholder will not develop any actual construction payroll. Data Quality Initiatives In addition to requiring WCIRB approval for the assignment of Classification 5606, the WCIRB has other initiatives to verify the proper application of the classification including: Classification Inspection Program: The WCIRB conducts classification inspections of all experience rated risks to ensure that payroll and losses are reported under the appropriate standard classification. In addition, if an insurer needs assistance in determining the appropriate classification for a policyholder s operations, the insurer may request that the WCIRB conduct a special classification inspection. Test Audit Program: The WCIRB s Test Audit Program is another tool to validate the accuracy of insurers classification assignments. At the time of test audit, the WCIRB validates if the insurer s premium auditor assigned the policyholder s payrolls and losses to the appropriate standard classification. Policy and USR Audits: The WCIRB audits the classifications endorsed on all incoming policies to validate that the policy classifications are consistent with both those assigned by the WCIRB and those reported in prior years for that policyholder. If a policy classification is inconsistent with WCIRB records or provisions of the USRP, the insurer is so advised. The same is true for incoming USRs. All reported USR information is subject to WCIRB audit and the insurer is notified if payroll is reported in a classification that is inconsistent with WCIRB records or provisions of the USRP. Responses to these inquiries may prompt the initiation of a classification inspection to validate the assignment of Classification Findings While the purpose of requiring WCIRB written approval to assign Classification 5606 is to help ensure the quality of data reported under construction classifications, at an implementation level, it is not practical for the WCIRB to provide written approval for each and every assignment of Classification 5606 on a premium audit. Indeed, the WCIRB finds that in some instances the lack of the pre-approved assignment of Classification 5606 has discouraged auditors and underwriters from correctly assigning the classification. Further, the WCIRB s other data quality initiatives have proven to be effective means to validate the accuracy of reported data. Rate Impact Analysis As noted above, second level supervisors are typically stationed at a job site or travel among different job sites and directly interact with first level supervisors, e.g., foremen, who often engage in hands-on 10

11 construction work. Third level supervisors assignable to Classification 5606 frequently work at a permanent office location and, as required, travel to job sites to exercise supervision through second level supervisors. Accordingly, in comparison to second level supervisors, third level supervisors typically spend less time at the job site and, hence, are most likely exposed to less of the operative hazards of construction work. Adoption of the single level requirement that is used in other jurisdictions would result in a transfer of payroll and corresponding losses attributable to second level supervisors from construction classifications to Classification To assess the possible impact on the pure premium rate for Classification 5606 that would occur if California adopted the single level structure used in other jurisdictions, staff compared the rate of Classification 5606 to: (1) the rates for the 10 largest construction classifications based on payroll; and (2) the average rate for the 10 construction classifications to determine the rate relativity for Classification 5606 as respects the construction classifications. A similar comparison was made with pure premium rates published by the NCCI and loss cost rates published by the New York Compensation Insurance Rating Board (NYCIRB). These comparisons are shown in Tables 1, 2 and 3. Table 1 California Classification 5606 vs. Construction Classifications 3 WCIRB Classification CA Advisory Pure Premium Rate 5606 Relative to Const. Class 5606, Executive Level Supervisors $ /5140, Electrical Wiring $ % 5183/5187, Plumbing $ % 5403/5432, Carpentry $ % 5201/5205, Concrete or Cement Work $ % 5446/5447, Wallboard Application $ % 5213, Concrete Construction N.O.C. $ % 6218/6220, Excavation/Leveling/Grading $ % 5146, Cabinets or Fixtures Installation $ % 5538/5542, Sheet Metal Work $ % 5474/5482, Painting $ % Avg. P.P. Rate of the 10 Const. Classes $ % 3 Based on the construction classifications that reported the most payroll in The California advisory pure premium rate noted in the table for the dual wage construction classifications is calculated based on the average of the low wage pure premium rate and the high wage pure premium rate. 11

12 Table 2 NCCI 4 Classification 5606 vs. Construction Classifications NCCI Classification Equivalent Advisory Pure Premium Rate 5606 Relative to Const. Class 5606 $ $ % 5183 $ % 5403 $ % 5221 $ % 5445 $ % 5213 $ % 6217 $ % 5437 $ % 5535 $ % 5474 $ % Avg. P.P. Rate $ % Table 3 New York Classification 5606 vs. Construction Classifications NYCIRB Classification Equivalent NY Lost Cost Rate 5606 Relative to Const. Class 5606 $ $ % 5183 $ % 5403 $ % 5221 $ % 5445 $ % 5213 $ % 6217 $ % 5437 $ % 5535 $ % 5474 $ % Avg. Loss Cost Rate $ % 4 The NCCI publishes advisory pure premium rates for Arizona, Florida, Idaho, Illinois, Indiana and Iowa. The rates shown in Table 2 are the average of the rates published for these states. 12

13 As indicated above, California s pure premium rate for Classification 5606 is not only significantly lower than that of other construction classifications, but, on a relative basis, is significantly lower than that of Classification 5606 in those jurisdictions that adopted the single level structure. A likely explanation for this variance is that with the broader scope comes loss experience that is significantly worse than that developed solely by third level executive supervisors. While it is not possible for the WCIRB to identify the payroll and loss experience that, given a re-scoping of the classification, would be shifted into Classification 5606, the experience of other jurisdictions does provide a high level of confidence that this shift would result in an increase to the pure premium rate for Classification Table 4 shows what the pure premium rate for Classification 5606 would be if the same relativity as NCCI and New York was realized. Table 4 Potential Impact on the Pure Premium Rate for Classification 5606 CA Avg. Construction P.P. Rate 5606 Relative to Const. Classes Potential Pure Premium Rate $1.20 (Current rate) $ % (CA) $ % (NCCI) $2.57 $ % (NY) $3.12 As shown above, broadening the scope of Classification 5606 would likely result in a higher advisory pure premium rate and a narrower rate differential between Classification 5606 and other construction classifications. In addition to the impact that shifting payrolls would have on the rate for Classification 5606, these shifts would likely also impact the pure premium rates of the construction classifications to which the payrolls were previously assigned. Assuming that these shifted payrolls are for high wage supervisors and therefore represent some of the best experience within each classification, this shifting would also increase the rates for the construction classifications. Findings In view of the above, it is likely that any significant expansion of Classification 5606 would also require an adjustment to the pure premium rate for Classification 5606 and potentially to other construction classifications. Absent this adjustment, pure premium rates based solely on the unadjusted data would not accurately represent the cost of insuring the impacted classifications. While broadening the scope of Classification 5606 may result in some individual employees being reassigned to a lower rated classification, on the aggregate (and long term) level, employers are unlikely to receive significant benefit as there would likely be no change to the overall costs associated with insuring the construction industry. Recommended Clarifying Changes to Classification 5606 Construction Management Companies On large construction projects, it is not unusual for project owners to hire construction management companies to provide expertise and advice regarding construction projects. Such companies do not engage in or perform supervision over construction operations; rather, they serve as an intermediary between the general contractor and the project owner to provide consulting services. Since these companies are solely engaged in consulting and do not engage in construction supervision, the 13

14 operations are assignable to Classification 8601(1), Engineers consulting. As the WCIRB often receives questions about how to classify construction management companies, an amendment to Classification 5606 to address this issue would be helpful. Estimators Estimators and management level staff of construction companies who have no supervisory responsibilities over construction operations or any responsibilities that require them to walk through job sites to make direct observations for various reasons, such as determining progress or compliance with safety standards and best practices, are assignable to Classification 8742(1), Salespersons outside. Such employees may visit a potential job site before construction work commences or visit a job site for the purpose of meeting with clients and other project representatives in a sales or public relations capacity, which is acceptable under Classification 8742(1). The WCIRB often receives questions as to whether Classification 5606 may apply in view of the incidental job site exposure and an amendment to Classification 5606 to address these operations would be helpful. Conclusions In view of the above, the WCIRB determined that: 1. Second level supervisors are usually stationed at a job site or travel among different job sites, whereas third level supervisors assignable to Classification 5606 frequently work at a permanent office location and, as required, travel to job sites to exercise supervision through second level supervisors. 2. Adoption of the single level requirement that is used in other jurisdictions will result in a transfer of payroll and respective losses from construction classifications to Classification 5606, which most likely will result in an increase to the advisory pure premium rate for Classification 5606 and the respective construction classifications. 3. While the USRP requirement for WCIRB approval to assign Classification 5606 was established several years ago to facilitate the proper administration of Classification 5606 and to ensure the integrity of reported data, in view of current data quality initiatives, including the WCIRB s Test Audit and Classification Inspection Programs that validate the assignment of classifications, staff does not believe it is necessary to continue to require approval for the assignment of this classification. 4. Classification 5606 should be amended for clarity and to provide direction as to how related operations are classified. In view of the above findings, the WCIRB recommends the following: 1. Classification 5606 should not be amended to include second level supervisors; and 2. Amend Classification 5606 in the USRP effective January 1, 2015 to: a. Remove the requirement that the assignment of Classification 5606 must be confirmed by specific written approval from the WCIRB; and b. Further clarify its scope and application and to provide direction as to how related operations are classified. 14

15 Proposed Revisions to Part 3, Standard Classification System, of the California Workers Compensation Uniform Statistical Reporting Plan 1995 Amend Classification 5606, Contractors, to eliminate the requirement for WCIRB approval, to direct how related operations shall be classified and for clarity. CONTRACTORS construction or erection executive level supervisors no direct supervision division of a single employee s payroll with any other classification is not permitted 5606 This classification may be assigned only in connection with the construction or erection classifications listed in Appendix I, Construction and Erection Classifications, and must be confirmed by specific written approval from the WCIRB. This classification applies to executive level supervisors of construction operations wherein the employer develops payroll in one or more construction or erection classifications provided not less than two levels of supervision, as defined in Part 3, Standard Classification System, Section IV, Special Industry Classification Procedures, Rule 2d, Executive Level Supervisors, are retained between the executive level supervisor and the workers performing actual construction operations. This classification also applies to executive level supervisors when all construction operations are subcontracted to licensed contractors and no payroll is developed under any construction classification. In such instances, executive level supervisors exercise control exclusively through licensed subcontractors. This classification also includes management level employees such as safety managers, project managers and engineers, who do not supervise construction operations but whose duties include walking through a construction site during the construction phase, provided the employer retains two levels of supervision over the construction crew(s) or where all operations have been subcontracted to licensed subcontractors. Otherwise, such employees are miscellaneous employees and shall be classified in accordance with Part 3, Section IV, Rule 2c, Miscellaneous Employees (Construction or Erection). This classification also applies to executive level supervisors when all construction operations are subcontracted to licensed contractors and no payroll is developed under any construction classification. In such instances, executive level supervisors exercise control exclusively through licensed subcontractors. On jobs where all construction operations are subcontracted to licensed subcontractors, Classification 9015(1), Building Operation all other employees, shall apply to job site cleanup and warranty repair conducted after construction is completed. Classification 5606 does not apply to employees whose job site duties are limited to estimating, outside sales or public relations. Employees whose non-clerical duties are confined to visiting job sites for the purpose of pre-construction estimating, or for meeting with clients and other project representatives, are classified as 8742(1), Salespersons outside, provided they have no supervisory responsibilities over construction operations and they do not walk through job sites for purposes such as assessing construction progress, evaluating quality or determining compliance with safety standards. Fee based construction management companies that do not engage in or perform supervision over construction operations, but serve as an intermediary between the general contractor and project owner or otherwise provide expertise regarding a construction project, shall be classified as 8601(1), Engineers consulting. Also refer to Part 3, Section IV, Rule 2, Construction or Erection Work. 15

16 Item CR Classification Study Hospital Industry 8830, Institutional Employees hospitals, sanitariums, rest homes or homes for the aged all employees including Clerical Office Employees and Outside Salespersons not jail or prison employees 9043, Hospitals all employees including Clerical Office Employees and Outside Salespersons Executive Summary Objective The WCIRB reviewed the procedure of combining, for ratemaking purposes, the experience of Classifications 8830, Institutional Employees hospitals, sanitariums, rest homes or homes for the aged, and 9043, Hospitals all employees, to determine whether these classifications should remain combined for ratemaking purposes. As part of this review, the WCIRB also evaluated the classification procedure applicable to physicians that work for hospitals. Findings Based on its review, the WCIRB has determined that: 1. The operations contemplated by Classification 8830 are separate, distinct and identifiable from those contemplated by Classification 9043; however, Classification 8830 does not develop adequate data to produce a statistically credible advisory pure premium rate. 2. Pursuant to the Corporate Practice of Medicine Law, with the exception of teaching hospitals, private hospitals are not permitted to directly employ physicians. In addition, hospitals are not permitted to have controlling ownership (>50%) in physician groups. As such, with the exception of teaching hospitals, private hospitals and physician groups operate as separately classifiable entities and are not combinable for experience rating purposes. In view of the above findings, the WCIRB recommends: 1. Continuing to combine the experience of Classification 8830 for pure premium ratemaking purposes with that of Classification No changes to the scope or phraseology of Classification

17 Introduction The WCIRB reviewed the procedure of combining, for ratemaking purposes, the experience of Classifications 8830, Institutional Employees hospitals, sanitariums, rest homes or homes for the aged, and 9043, Hospitals all employees, to determine whether to continue the long-standing procedure of combining the experience of these classifications for ratemaking purposes. Typically, classifications are combined for ratemaking purposes for the following reasons: 1. Similarity in Operations Classifications are combined for ratemaking purposes when the proper classification may be difficult to determine due to a significant similarity in operations; for example, a clear delineation does not exist between the two classifications. 2. Low Statistical Credibility The experience of two or more classifications is combined for ratemaking purposes when one or more of the classifications lack statistical credibility. Although the classification(s) may be clearly defined, due to insufficient statistical credibility, the classifications are combined based on similarity in industry type and operations. 3. Temporary Variance in Experience There is a temporary dissimilarity in the relative experience of the two related classifications that results in a relationship between the relativities for the classifications that are not expected to continue into the future. That is, based on historical experience for each classification and other factors, there is a high likelihood that the advisory pure premium rate relativities for the classifications will change. The WCIRB also reviewed the relationship between physician groups and hospitals to determine if any changes are necessary to the classification procedure for physician groups that operate in connection with hospitals. Classification History Presented below is a timeline of the significant changes to the scope and application of the relevant classifications: 1915: Classification 9043, Hospitals all employees including Clerical Office Employees and Outside Salespersons, was established. 1974: Classification 9043(2), Institutional Employees hospitals, sanitariums, rest homes or homes for the aged all employees including Clerical Office Employees and Outside Salespersons not jail or prison employees, was established. 1985: Classification 8830, Institutional Employees hospitals, sanitariums, rest homes or homes for the aged all employees including Clerical Office Employees and Outside Salespersons not jail or prison employees, was established and combined for ratemaking purposes with Classification 9043 due to lack of statistical credibility. 2014: Classification 9043 was amended to provide that (1) this classification applies to facilities that are licensed by the California Department of Public Health as a general acute care hospital, acute psychiatric hospital or special hospital; (2) a clinic that operates at a location separate from the hospital and does not provide 24-hour inpatient care shall be classified as 8834, Physicians; (3) hospitals operated by municipal, state or other public agencies shall be classified as 8830, Institutional Employees; and (4) hospitals operated in connection with jails or prisons shall be classified as 7720, Police, Sheriffs, Constables, Marshals, Animal Control Officers, Game and Fish Wardens, and Jailers. 17

18 Description of Operations Following are the classification phraseologies, footnotes, and summaries of operations for Classifications 9043, Hospitals all employees, and 8830, Institutional Employees hospitals. HEALTH AND HUMAN SERVICES HOSPITALS all employees including Clerical Office Employees and Outside Salespersons 9043 The payroll for student nurses and interns shall be included at an average wage of at least $100 per week. This classification applies to facilities that are licensed by the California Department of Public Health as a General Acute Care Hospital, Acute Psychiatric Hospital or Special Hospital. Hospitals retain medical staff with the capability to provide 24-hour inpatient care. A medical clinic that operates at a location separate from the hospital shall be classified as 8834, Physicians, provided the clinic does not provide 24-hour inpatient care. Hospitals operated by municipal, state or other public agencies shall be classified as 8830, Institutional Employees. Hospitals operated in connection with jails or prisons shall be classified as 7720, Police, Sheriffs, Constables, Marshals, Animal Control Officers, Game and Fish Wardens, and Jailers. Classification 9043 applies to private institutions that operate hospital facilities with 24-hour inpatient care for the general public. Hospitals are licensed by the State Department of Health Services as general acute care hospitals, psychiatric hospitals and special hospitals. Hospital facilities typically include surgical facilities, delivery rooms, and diagnostic and treatment facilities. Hospital facilities also include radiology, emergency and clinical laboratory services regularly and immediately available for medical patients on the premises, though it is common for a hospital to contract with separate concerns for the provision of these services. The provision of radiology, emergency and clinical laboratory services by separate concerns is classified as 8834, Physicians. Registered nurses, licensed vocational nurses and certified nurses aides provide day-to-day care for patients. These individuals administer medication according to physician orders and assist patients in eating, bathing, dressing and similar activities. The surgical staff, including anesthesiologists, assist in various surgical procedures offered at the hospitals. Radiology staff takes X-rays, CAT scans and MRIs, which assist in the diagnosis and treatment of various diseases, broken bones, and other ailments. Laboratory technicians perform diagnostic tests to assist physicians in determining the cause or progression of a disease. Pharmacists prepare and provide medication in compliance with physicians orders. Respiratory therapists provide a variety of respiratory treatments to patients suffering from lung ailments. Additionally, emergency medical technician staff may be retained in connection with the hospital s ambulance service. Other common hospital employees include dietary, housekeeping, laundry and maintenance staff. MUNICIPAL, STATE OR OTHER PUBLIC AGENCIES INSTITUTIONAL EMPLOYEES hospitals, sanitariums, rest homes or homes for the aged all employees including Clerical Office Employees and Outside Salespersons not jail or prison employees The payroll for student nurses or interns shall be included at an average wage of at least $100 per week Classification 8830 is a municipal classification that applies to the operation of hospitals, sanitariums, rest homes (residential care facilities for adults) or homes for the aged (residential care facilities for the elderly) by municipal, state or other public agencies. The operations contemplated by Classification 8830 include all aspects of patient care, dining facility operation, laundry, maintenance, grounds keeping, housekeeping, as well as clerical and outside sales employees. 18