Purpose of the Changes
The WSIB’s stated purpose of the Rate Framework is to establish employer classifications and premium rates that more accurately reflect the risk presented by individual employers; and to incorporate stability measures to limit premium rate volatility. By attempting to ensure that premiums better reflect the accident and claim histories of individual employers, the WSIB intends to create further incentive for employers to invest in occupational health and safety efforts that reduce workplace injuries.
Currently, Schedule 1 employers are classified based on their business activities into one or more WSIB “Classification Units”, each of which falls under one of 155 different “Rate Groups.” Premium rates are fixed at the Rate Group level. Under the Rate Framework, the system of Rate Groups and Classification Units will be replaced with over 900 North American Industry Classification System (“NAICS”) Codes. Each NAICS Code falls into one of 34 “Classes” or “Subclasses” listed in the amended Schedule 1 of O. Reg. 175/98: General. An employer’s claims experience under their prior Classification Units will be transferred to the corresponding NAICS Codes under the Rate Framework. Employers whose business activities fall under Schedule 1, Part I will be subject to mandatory coverage and will be required to pay premiums.
Employers whose business activities fall under Schedule 1, Part II, will not be subject to mandatory coverage. However, these employers may still “opt-in”, and apply to the WSIB for Schedule 1 insurance coverage. The Rate Framework will not impose any significant changes for Schedule 2 employers.
The WSIB’s updated Employer Classification Manual for the Rate Framework is available on its website, and employers should now have received their NAICS Code(s) from the WSIB. The NAICS Code-based classification system will group certain types of business activities differently than under the current system. As a result, certain business activities may no longer be subject to mandatory coverage under the insurance plan. Employers should take the opportunity to review their NAICS Code descriptions to determine whether they are properly classified and covered.
Single or Multiple Premium Rates
Most employers carry on a single business activity and will be classified in a single NAICS Code. Where that is the case, under the Rate Framework the employer’s premium rate will be based on the Class that corresponds with the employer’s NAICS Code. However, some employers may have more than one business activity and, therefore, multiple NAICS Codes. Depending on the particular NAICS Codes and how the particular employer’s operations and payroll are structured, an employer with multiple NAICS Codes may pay one, or multiple, premium rates. Effective 25 September 2019, the WSIB started notifying employers of their premium rate information for 2020. Employers should take the opportunity to review their premium rates closely to ensure they understand how they have been calculated and that they are correct.
Experience Rating Programs and Cost Windows
Currently, the length of time that a workplace injury stays “on the books” and impacts an employer’s WSIB costs varies depending on which experience rating program the employer is enrolled in. For example, NEER has a four-year cost window while CAD-7 has a five-year cost window. These experience rating programs will be eliminated under the Rate Framework, and all employers will be subject to a six-year cost window. The WSIB has indicated that any adjustments to an employer’s current experience rating (such as by way of an appeal) will be applied retroactively within the appropriate window.
Under the Rate Framework, employers will be assigned an “Actuarial Predictability” rating based on the number of claims and quantum of insurable earnings incurred during the six-year window. This rating impacts how an employer’s individual claims experience will be weighed against the collective claims experience of their Class/Subclass when calculating the employer’s premium rates. Actuarial Predictability will also impact both an employer’s per-claim cost limit and how significantly their individual premium rate(s) will deviate from the class average.
Transitioning into the Rate Framework
For each Classification Unit under which an employer’s business activities were classified before 1 January 2020, the WSIB will attribute the employer’s insurable earnings and claims experience from 2013 through 2018, and any experience rating adjustments the employer received in 2016 through 2018, to a corresponding NAICS Code and related Class/Subclass. For each Class/Subclass, the WSIB has determined what Risk Band the employer would fall under in 2019 if the Rate Framework were already in place. Then, based on the employer’s claim experience over a rolling six-year cost window, from 2020 onward each employer’s Risk Band (and therefore premium rate) may move up or down.
From 2023 onward, employers will generally only be able to move a maximum of three Risk Bands (i.e. 15% in premiums) higher or lower from the previous year’s Actual Risk Band. Employers are, therefore, in the best position to reduce premium rates during the years 2020-2022. An employer’s pre-Rate Framework claims experience will have an important impact on its premium rates under the Rate Framework. As such, it is advisable for employers to carefully consider whether they have any costly claims on their record from 2013-2018 and, where there is a reasonable chance of successfully appealing those claims, taking proactive steps to initiate the appeal process.
Temporary Employment Agencies
Special classification rules will apply for any employer that carries on business as a Temporary Employment Agency (“TEA”) supplying workers to another employer on a temporary basis. Special rules will apply governing TEA’s premium rates from 2020-2022.
We would like to thank Carissa Tanzola, Cassandra Ma and James Jennings for contributing this article. A longer version of this article with additional information on these upcoming changes may be accessed here.