[We are pleased to welcome as a guest blogger today our favorite actuary, Don Bashline of Bashline & Associates, based in Watertown, MA. Don has some interesting thoughts on the federal government’s new regulations pertaining to overtime, which have a direct impact on workers compensation.]
On August 23, 2004, the U.S. Department of Labor’s new regulations defining worker eligibility for overtime pay went into effect. In a possible attempt at subliminal spin, the program is called “Fairpay.” Let’s say it’s “fair” for some and not so fair for others. For a critical view of the regs, see the white paper at the Economic Policy Institute. Although the net effect of the new regulations won’t be totally clear for a while, no one disputes that some low-wage workers (earning less than $23,660 per year) will gain overtime protection, while many others will lose it. Among the apparent losers: sous chefs, childcare workers and a very large number of supervisors…
The regulations are complex and employers will have some flexibility in implementing them. There have already been cases where employers have given raises (good news?) to employees near the $23,660 threshold, resulting in those workers losing eligibility for overtime (bad news!). Others have chosen to preserve overtime eligibility for workers in high-demand occupations (for example, nurses) that theoretically could have been exempted under the new regulations.
What does this mean for workers compensation? The net effect of the new regulations is to lower the wages of many workers. This will impact workers compensation in two ways: First, overtime wages are included in the calculation of an injured worker’s average weekly wage. With changes in eligibility for overtime, average weekly wages for many workers will decline. As a result, the weekly workers comp indemnity payments for these “exempt” injured workers will also decline.
In addition, these changes will impact workers compensation premiums, which are calculated based on a rate per $100 of payroll. With payrolls declining due to the new regulations, insurance premiums will also decline. Insurers, particularly those who have a high percentage of premiums in affected classifications, will need to think about calculating the estimated impact of these changes on both premium income and claim costs. Employers, especially those who are self-insured, might also need to assess the impact of the new rules on their projected workers compensation costs.
The impact of these new regulations on workers comp calls for careful scrutiny in the coming months. LynchRyan will keep you posted.
Tags: actuaries, DOL, employment law, overtime
