Tuesday, September 18, 2012

Worker’s comp makes my head hurt

I had a nice simple worker’s comp policy, just covering me and one clerical employee. The premium was on the order of $200/year, almost none of which was actual risk. But it wasn’t worth worrying about at that rate. Then I hired a nanny for the summer and added her to the policy. And suddenly my agent couldn’t figure out anything, my underwriter turned out to be a very unpleasant person to talk to, and the audit division of the insurance company claimed they could fix most things at the end of the year but not little headaches like expense constants.

You don’t want to read the rest of this note unless you like thinking about worker’s comp. I resent having to think about it at all, particularly on Rosh Hashanah, but I needed to figure this out before we formally hired a part-time nanny for the fall today. So here’s what I’ve learned recently.

If you hire a domestic worker for less than 16 hours per week, you do not need to buy worker’s comp for that person. Source: http://www.mass.gov/lwd/workers-compensation/investigations/who-needs-workers-compensation-insurance-in.html. Is this true even if you have a worker’s comp policy covering other workers? What if there is a week at 20 hours, but most weeks are less than 16 hours and the average is less than 16 hours? Is it based on the highest week or the average week? If average, over what span of time? Can I hire one individual as a domestic worker for 15 hours per week and a clerical worker for 15 hours per week, and only cover them for their 15 hours as a clerical worker? (Assuming that the time split is documented well.)

This 16-hour limit is based on:
“The provisions of this chapter shall remain elective as to employers of seasonal or casual or part-time domestic servants. For the purpose of this paragraph, a part-time domestic servant is one who works in the employ of the employer less than sixteen hours per week.”

That suggests that a summer nanny, for example, would not need to be covered by worker’s comp even if they were full-time for that summer. But I haven’t yet found the definition of seasonal, let alone checked out case law on it. (And really, how much time am I going to put into this?)

The WCRIB of Massachusetts has out-of-date worker’s comp rates on their website in many places. For current rates, these are the best links I’ve found so far:

The expense constant is $159 for an earned standard premium of less than $200, $250 for an earned standard premium of $200 to less than $1000, and $338 for an earned standard premium of $1000 or more. Does the earned standard premium mean the calculated premium before any class code minimum premiums are applied? For example, class 0913 has a per capita premium of $188 for the year, but a minimum premium of $252. If that’s your only employee, is the expense constant $159 or $250? According to Basic Manual Rule VI-F-4 “The Admiralty or Federal Employers’ Liability Act Special Minimum Premium and the Classification Minimum Premium are not included in Subject Premium or Standard Premium.” So if the classification minimum premium is not included in the standard premium, then the expense constant based on the standard premium should be $159 in this example.

The expense constant for a domestic worker in a private residence is supposed to be $64 per worker, different from the threshhold-based expense constant in the paragraph above. Is the expense constant prorated for short-term employment? For my situation, it should not matter since I have a standard expense constant of either $159 or $250, and Basic Manual Rule XIV-G says “If a policy is written with both per capita and remuneration based exposure, only the larger of the per capita and standard expense constants is charged.” The standard expense constant is clearly higher than the per capita expense constant, so only the standard expense constant should apply. Updated: I had thought that this rule meant I should compare the per capita expense constant with the non-per-capita expense constant, but WCRIB says that the standard expense constant is calculated based on all premiums including per capita. At $64 per full-time domestic worker, I think the only way that the per capita expense constant would be higher if you also have payroll-based premiums is if you have four or more full-time domestic workers.

Is the expense constant added to your premium before or after the class code minimum premiums are calculated? My past experience says that it’s before, and Basic Manual Rule VI-E-4 says before as well.

A per capita rate is supposed to be prorated by the amount of time of actual employment. My insurance company audit department says that prorating means either half-year or full-year, rounded up. Is that right? Is the class code minimum premium also prorated? Basic Manual Rule XIV-E-3 says “Each pro rata charge shall be based on the period of employment but shall not be less than 25% of the per capita charge.” That’s not a very helpful answer, though it strongly suggests that the prorating should at least be done by 25% chunks rather than 50% chunks.

As a sole proprietor, I can elect to be covered by my worker’s comp policy. My income is presumed to be $41,300 for purposes of this coverage, so my calculated premium as an 8810 clerical worker would be $37.17 for the year. Hey, look, an easy one! There’s a few extra dollars for the terrorism surcharge (yes, there’s a terrorism surcharge), so it winds up costing about $40 as long as it doesn’t tip me over to the next higher expense constant.

Update after the annual audit, February 2013:

The state says that for a domestic worker who works 27% of the year (counting by days), the premium should be prorated to 27%. Travelers Insurance says that the prorating is 50% (initial estimate). Or 95% (first audit correction). Or 90% (second audit correction). Actually, they aren’t sure. They’re willing to go along with 27% since the state has given specific direction about my particular policy, but their computer is not willing. So it’s a manual override to 27%, with a note saying that they have no idea why their computer is giving different answers. And their annual audit procedure had no way to even document the start and end dates for the domestic worker.

And Travelers Insurance appears to believe that if the expense constant was ever calculated to be $250, even if that calculation was wrong, it should not be corrected to $159. So on a policy that should calculate out to $300, they charged $500, grudgingly corrected it to $495, and were dragged kicking and screaming to $390. To be fair, they did warn me last summer that they would have trouble with the expense constant at the time of the audit. But since it worked in their favor, they didn’t see the problem with waiting.

Bizarrely, Travelers Insurance is perfectly willing to apologize for any inconvenience, or for the processing delay, or for the hold time, but not for repeated overbilling. And despite having been through this in painful detail with them, I have no idea what they would try to charge me next year for the identical coverage.

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