California Workers’ Compensation Future

What it can mean to employers

Joseph is a general contractor. On average, a 25-year-old could expect to make about $20.00 per hour doing carpentry work for Joseph, or $3,200 per month. On the other hand, Joseph pays more than $2,000 per month in workers’ compensation premiums for a single employee. Add in medical insurance, a 401k and other perks, and benefits costs escalate quickly. How long can a business prosper when it costs more to provide employees with benefits than it does to pay them for their work? As the state’s employers know, the workers’ compensation craziness is one of the single largest contributors to the California economy’s ‘failure to thrive.’

As employers wait to see what the impact of new Workers’ Compensation reform will be, most are much more optimistic about the future. “This legislation appears to offer a significant improvement in the way that California’s workers’ comp. program will function,” said CFBF Administrator George Gomes. “Time will tell how significant it is in terms of reducing rates.’

The individual carriers set insurance rates, although the State Insurance Commissioner recommends advisory rates. The expectation is that there will be some substantial cost savings, and part of the new legislation requires a study of cost savings in 2003 and 2004 and a report to the public by Jan 1, 2006. In the meantime, employers would be wise to keep an eye on the market and do some ‘shopping’ for better rates, both now and in the future. Experts caution that we won’t see substantial rate changes until next year. The hope is that the changes in the law will create some competition in rates as new carriers are lured to the state. (Lack of competition is currently seen as one of the driving forces behind spiraling rates).

Another wild card is how much impact the new laws will have on fraudulent claims. “What we don’t know is what part of the system’s problems were the result of people manipulating and abusing the system,” Gomes says. He notes that although the new laws are intended to eliminate fraud, there will always be those who try to beat the system. Only time will tell whether reforms have outfoxed cheaters.

Meanwhile, you might look into other methods for improving your bottom line, including hiring temporary employees for some of your business processes.

Source: Kate Campbell. “Workers’ Comp Reform is Good Compromise.” California Farm Bureau Ag Alert.