Workers’ compensation rates: What’s on for 2012

Administering workers' compensation a regular part of the payroll practitioner's role

Calculating and administering workers’ compensation rates are a regular part of the payroll practitioner’s role.

It’s the time of year when companies start receiving their rates for 2012, with each province and territory determining rates for their jurisdiction.

For payroll departments dealing with multiple jurisdictions, this can mean many changes in the rates being administered. For workers’ compensation boards (WCBs) that means taking a look at what revenue is required to cover costs of running the board, costs of 2012 injuries and future costs of those injuries, said Tammy Turner, director of corporate services, Workers Compensation Board of Prince Edward Island.

“To make sure the needs of those workers are taken care of tomorrow and in the future,” she said.

Other factors taken into consideration include the payroll recorded by employers and revenue from WCB investments, said Turner.

Some WCBs, like P.EI.’s, have only determined a preliminary rate by year-end. The rate for 2012 is currently set at $2 per $100 of payroll. This rate will go to the WCB’s board in late November and go through a budgeting exercise to determine whether the rate will stay at $2, a five cent reduction from 2011.

“For P.E.I. we’re actually in a very strong financial position, so the board’s able to cover the cost of current and future needs of the workers, so as a result we don’t need as much revenue to cover these costs,” said Turner.

Final assessment rates for P.E.I.’s board go out to companies on the first business day of January.

Nova Scotia

Individual rates are based on how companies and industries have done in the recent past, said Brian Field, manager of business intelligence, Workers’ Compensation Board of Nova Scotia.

“So for example, rates for 2012 are set part way through 2011,” he said. “We look at the last five years of data in the case of industry rates or the last three years of data for an employer’s own rate, based on experience rating in Nova Scotia.”

The industry rate is the starting point for every employer. That rate is based on how the employer’s industry has done collectively and on experience rating, a band of rates within an industry rate, said Field.

So, for example, if the industry rate is $5 per $100 of payroll, there’s a range from minus 30 per cent to 60 per cent that every employer at the $5 rate will fall into based on how they’ve done. On a $5 rate, an employer with a minus 30 per cent rating would have its rate go down to $3.50 and 60 per cent would take an employer up to $8, he said.

Nova Scotia also has a surcharge program, where employers with high experience ratings and multiple years of poor results might have to start paying more than they would under experience rating alone, said Field.

“It’s basically identifying those who consistently have high costs relative to the others in their industry.”

About 100 employers in the province fall into this group, he said.

The average assessment rate across all industries in Nova Scotia is $2.65 per $100. It has been at that level for a number of years now, he said.

“If you look across the country... all the boards have different benefits structures, some are fully funded. In other words, they have all the money they need if they shut their doors today they already have enough to pay out the people who already have been given long term benefits, they are fully funded,” Field said. “We are not in that position.”

As of 2010, the WCB was 64 per cent funded, with an unfunded liability difference of around $600 million, he said.
The WCB has a plan to pay down the underfunded liability.

“We do a lot of stuff to try to keep costs down through injury prevention and return to work, encouraging employers when you have an injured worker to bring them back as soon as is reasonable and safe,” he said. “So that’s the kind of thing that will keep the costs in the system down.”

There are a couple of things a WCB can do when it is underfunded, he said.

“You can either decide to collect as much money as you need over a very short period of time to pay that off, which would be good for the system’s financial health as a whole but, for the employers in Nova Scotia, they wouldn’t be terribly happy,” he said.
The funding strategy approved by the board of directors calls for the WCB is to hold at an average rate of $2.65 per $100.

“That leaves, depending on the year, typically between 15 and 20 per cent of the money we collect is sort of extra money that goes down to pay our unfunded liability,” he said. “So it’s more than we need to cover the new claims but it’s not enough to get rid of our unfunded liability all at once, so it picks at it over time.”

The liability should be gone by 2018 to 2021, a floating date because of financial markets and the return generated, he said.
“We have a very different funding position than a lot of other boards. I know Ontario’s not fully funded right now but some of the boards like Alberta have more money than they know what to do with, they are overfunded,” he said, adding the issue there is they have to figure out what to do with the extra money.

For the foreseeable future, Nova Scotia will stay at that rate, he said.

“Our rate is not going to go down anytime soon and unless the financial markets get a whole lot worse I don’t think there is any plans to raise our rate anytime soon either. We’re just going to keep it at $2.65 and pay down the unfunded liability whenever that happens to be, which hopefully will be sooner rather than later.”

But it’s hard to say what the trend will be for individual assessment rates in the coming years, said Turner.

“The message we always give is every year rates go up and rates go down for individual rate groups.”

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