Where I live and the type of work that I do, the rates are as follows:
$24/hr and above are charged 15%
$23/hr and below are charged 50%
15% per hour is really high, but 50% is just silly. I am sure that one of the unintended consequenses of this is that inexperienced people are not getting hired and trained in the numbers that we need.
I am hiring a new relatively inexperienced person and was going to pay them $15/hr. I got to thinking, why not just pay them $24/hr, but adjust the hours so that it comes out to $15/hr. That way as the person progresses, I can give incremental raises and still pay the lower workmen’s comp. rate.
Any thoughts?
Replies
A couple of things come to mind. What you are proposing is of course insurance fraud. You may get away with it, right up to the day your new boy gets hurt and then explains your clever payroll stunt to the insurance adjudicator. Then that 50% is going to seem real cheap. On the other hand, I am not condemning you. Workman's comp rates ARE way out of line, because lots of guys are flying below the radar to survive, and every time someone is hurt some one pays. When the insurance company sustains a loss, premiums go up and so on ad infinitum. I work in California and it is so bad out here I have decided to scale my work way back as I just cannot be competitive with the bandits. Hopefully some of the other contractors here will chime in with a little advice and conversation. It really is a topic with no immediate solution.
Edited 8/31/2007 12:03 am ET by framerboy
I understand that you're simply trying to make an unfair situation fair, but it's still dishonest. Regardless of what I think though, it's illegal, and is just poor long term business sense.
If you really want this guy, either pay him the $24/hr and add a policy where he provides all power tools and consumables (pencils, blades, gas for the compressor . . .), or pay him $11.50/hr (which = 15/hr + 15% after adding 50% WC) and throw in some low cost benefits of some kind to keep him happy.
I don't think you'll find a lot of favorable responses to that kind of a question here. One thing I like about these guys is they do things by the book.
-T
You can't charge your high WC guys for things you don't charge you lo WC guys if you're paying them the same.Otherwise, I think you have the right idea.The formula for computing labor costs is merely Labor Rate + Labor Burden, (Pay times WC+SS+UI,) or A + (A x LB). So the cost of paying $15 is
$15 + ($15 x (WC+SS+UI)
Factoring that gives $15x1.5875 at 50%WC, 6.75%SS, and 2%UI. The cost of paying $15/hr with a 50% WC rate is $23.8125.The Labor Burden at 15% WC is 23.75%
The formula to see what (lower rate at 50%)=(higher rate at 15%):
A x 1.5875 = 15$ x 1.2375, or
A = 15 x 1.2375 / 1.5875
So, $11.70/hr at 50% = $15/hr at 15%FYI, $18.71 at 50% costs the same as $24 at 15%To figure your labor costs, add all the Labor Burden percentages, lose the decimal point, put that number after a "1." and multiply by the Pay rate.LB%s 50, 6.75, and 2 = 58.75
1.5875 times $15 = $23.81To get a Factor to find the Equal Cost pay rate for any LOW WC %, you'll just need to know the two multipliers.Multiplier at 50% WC = 1.5875
Multiplier at 15% WC = 1.2375Divide the little number by the big number;
1.2375/1.5875 = 0.779527559055118Yee haw! Let's round that Factor to .78
Multiply the higher Pay Rate, At the lower WC, by the Factor;$15 x .78 = $11.70I've attached a small Excel workbook that does this math for you. Just fill in the lightly shaded cells. THe workbook and worksheet are protected, but no password needed.SamT
Thanks for that workbook, it looks like it'll come in handy. I'll have to wait a little while before I use it though, my head already hurts after reading all of your calculations. It sure looks like you know your stuff.
I just sent you that e-mail I promised.-T
For those in the OPs' situation where there is such a jump in WC due to Pay Rate, that SS could be helpful.Whenever I put my tin foil beany on so *THEY* aren't controlling my thoughts, I think the Union had something to do with that break in rates.It is really galling to realize that in order to be fair to all your crew and keep your best men happy, you have to pay more for your lesser qualified people than for your best.SamT
"you're simply trying to make an unfair situation fair, "It might seem unfair on the surface, but then after I thought about it, I realize that most injuries are the inexperienced guys, so their risk must be higher.
Welcome to the Taunton University of Knowledge FHB Campus at Breaktime. where ... Excellence is its own reward!
that very well may be the case, but whats the benifit in paying anyone more then 18 per hour and less then 24.... money works out the same, and why give the W/C money rather then your employee
When I was in CA, at one point we got our WC rate notice with the low-wage/high-wage split, and realized we needed to give three guys a couple bucks more each. So, I went out to the job, told them they were getting raises in order to avoid higher insurance costs, and that was it. Of course they were happy, but they had done nothing in particular to deservce raises, and other guys were pizzed about it.
End result: we paid less premiums on the same worker hours and exposure. The system there is... stupid. There are a lot of companies doing the same thing to avoid the ridiculous wage/premium tiers, and bottom line is they take in less premiums. I assume they have rooms full of actuaries working on these systems, but it makes zero sense to me.
I agree it is stupid, and would cause problems.
If I have a guy worth 24/hour and I'm paying him that and another guy who's worth 18 but I pay him 24 cause it's the same cost I would expect the guy who's worth the money to get pissed off.
They need to work out a better scale or system.
Either that or I need to hire guys that all at the approximate skill level and not care if I'm paying them to do lower wage work...
Edited 9/1/2007 7:48 pm ET by CAGIV
Right, it is a pretty big step to stumble over.
Welcome to the Taunton University of Knowledge FHB Campus at Breaktime. where ... Excellence is its own reward!
I think that another reason for the differential is the type of work that they do.The lower paying would more likely be roofers and labors than say finish carpenters.Some logic to that. But to make such a large difference in WC based only on wages makes no sense.Even within CA there is probably that much wage variation from someplace like San Franisco to some rual community..
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A-holes. Hey every group has to have one. And I have been elected to be the one. I should make that my tagline.
Bill, I think you may be onto what is happening. I have a hard time swallowing that WC is that much higher simply because of lower wages. Possible I suppose , but it seems there must be more info that is missing here .
"Poor is not the person who has too little, but the person who craves more."...Seneca
Bill,
your assesment of the reasoning in play here may be on the money-----but the W.C.'s USE of that reasoning is in practice faulty--------
Per hour, roofers wages may often be HIGHER than carpenters-----which would invalidate the presumed use of level of wages to determine WC rates. A lot of things will factor into that---union/non union etc.
Here in ohio----we pay WC rates based on the employees classification. WC rates for workers in a carpentry classification are at one rate, roofing at another, sheetmetal at a 3rd and so on.--actually--- I just sent my ticket in to WC.---- i think roofing rates were something like 38% of every $100 payed in wages,sheet metal in the 20's and carpentry maybe around 12%.
not currently having employees---this is only of academic interest to me right now------but I will almost certainley have 3 employees for the second quarter of 2008 in the roofing classification-----ouch!
Stephen
Roofers WC in FL is around 65% carpenters around 35
They are most likely to have an accident in months two to six. The first month they are stil a little initmidated by the new work, and being careful.
Then they overcompensate and get cocky. Sometime in months two to six, they either have the accident, or have one or two near accidents, and learn from them.
If you had an employee making 18+ an hour, why wouldn't you just pay them 24 an hour and put the extra 6 bucks an hour in their pocket instead of into comp.
Between 18-23 per hour you're money ahead to just give them the money.
Thanks so much for all your replies. This forum is very, very cool.
But you got to make it so hard to collect the WCdrugs, no cover
alchol. no cover,
safety glasses, no cover
tools, no cover
safety guard, no cover.Haga su trabajo de fricken
Do what ya want....just don't confess to ever having parked in a handicap spot on this forum.
J. D. Reynolds
Home Improvements
If you take the wording literally then you should pay them $23.50 hr and not have to pay any premiums.
WA state has the most sensible system I have seen (which don't mean much, since I've only seen 2... but I've read about a lot of them). We pay premiums per hour worked, not a percentage. For "wood frame building construction" I pay about $2.50 per hour worked, regardless of wage. If you make $10 per hour, then it's 25%, if you make $30 per hour then it's about 8%. They must be doing something right here, because they declared a "rate holiday" for the second half of 2007, with much lower rates for everyone. I had to go into my accounting software and reset all the multipliers, but it is turning out to be very affordable for this second half.
Now, as far as being a WC claimant in this state... I never have, so I don't know. Maybe they bleed you dry, and that's how they charge these low rates.
One more thing... employee pays ~20% of the premium here as a payroll deduction.
"One more thing... employee pays ~20% of the premium here as a payroll deduction"No he doesn't.You pay it all.Don't believe me?Let say they jumped it to 100% and next year they are short and say raise the rates to $5/hr.Do you think that your employee's are just going to say "Thank you for keeping the WC" or are they going to ask for a wage adjustment?"We pay premiums per hour worked, not a percentage. For "wood frame building construction" I pay about $2.50 per hour worked, regardless of wage. If you make $10 per hour, then it's 25%, if you make $30 per hour then it's about 8%."WC pays two expenses. One is the actual medial cost and that would be the same.The other is for lost income and permante damages. If they base that on income and not a fixed amount then the ideal arrangement would be to have both an hourly portion and a percentage of salary portion.But there is a limit on how much effort would go into tracking it that close..
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A-holes. Hey every group has to have one. And I have been elected to be the one. I should make that my tagline.
Bill, I guess it's mostly semantics but the fact of the matter is that an employer in WA can deduct a prescribed amount from the employee's paycheck as a WC premium. Whether or not the workforce has demanded higher wages to compensate... who knows.
As far as the hourly vs. percentage systems, the state folks here have obviously figured out how to set the premiums as hourly rates, and still come up with enough dough to compensate employees for lost wages. Works for me.
Bottom line, I'm just pointing out a couple of features of the system here. My experience doing business in WA and with WA is that they are very together and very easy to deal with. We have all heard horror stories from small business people dealing with their state bureaucracies, and fortunately I have none to tell, at least yet.