By Mark Jackson, JCJ Insurance Agency
Design firms have had to make numerous changes to their business operations due to the COVID-19 pandemic. A significant change for many firms has been with their workforce. Firms have had to manage employees working remotely, furloughed employees, and job layoffs. Job duties and responsibilities have also been impacted with limited or virtual site visits, online meetings, and social distancing procedures.
While there is already a plethora of information about COVID-19, this article specifically addresses how the pandemic affects Workers’ Compensation premiums for design firms based in Florida. We will begin with an overview of the traditional Workers’ Compensation classification structure, and how the State of Florida and the National Council on Compensation Insurance (NCCI) have temporarily changed the rules to offer premium relief for firms that have been affected by the pandemic. We will end with some more good news for 2021.
Florida Workers’ Compensation Overview
Most design firms have two Workers’ Compensation classification codes. Employees are grouped based on their job duties and will be in either one of the two categories below:
• 8603 Architectural or Engineering Firm—Clerical
Regardless of title or professional designation, this is for employees who work exclusively in the office;
• 8601 Architectural or Engineering Firm—Including Salespersons or Drivers
This is for employees who perform duties outside of the office, including sales presentations, business development and marketing, site visits, and off-site client meetings.
The insurance rates for 8601 are over three times higher than 8603, so it is important for firms to properly classify employees. Under normal circumstances, a split of the employee’s payroll between Codes 8601 and 8603 is not permitted in Florida. For an employee who spends 20% of their time outside of the office, 100% of their payroll should be assigned to Code 8601. Another example is if an employee performs site visits for the first four months of the year, then works either in the office or remotely from home for the rest of the year, typically 100% of their payroll would be assigned to the higher rate. But, as we all know, there is nothing typical about 2020.
Changes to the Codes
The pandemic has forced many firms to temporarily, and in some cases permanently, change the duties of their staff. If a change in the employee’s duties was triggered by the pandemic, the State of Florida and the National Council on Compensation Insurance (NCCI) are treating these types of situations as a job change. NCCI is a licensed rating organization authorized to make recommended rate filings on behalf of Workers’ Compensation insurance companies in Florida. NCCI allows for the use of two codes in a single policy term when there is a job change.
Taking the example from above, Code 8601 would be used for the period prior to the Covid-19 change, when the employee was functioning in their normal capacity and performing functions outside the office. Employees that are working from home are assigned to Code 8603 – Clerical. Therefore, when the employee became 100% office or home-based due to COVID, Code 8603 would apply. When they return to their normal duties that include job site visits, networking, etc., they would return to Code 8601.
Employers will need to keep detailed records of this division of payroll for the Workers’ Compensation audit. While this is an arduous task, it may help some firms reduce their premium for the 2020 policy term.
Furloughed Employees
Paid furloughed employees are individuals who continue to receive payroll during a temporary layoff or an involuntary leave and are not performing any work duties for an employer. The State of Florida approved an NCCI filing that excludes wages paid by an employer to a furloughed employee, due to COVID-19.
The change is effective as of March 1, 2020. In order to exclude the payroll, firms will need proper documentation. The firm must keep separate, accurate, and verifiable payroll records for the furloughed employees. The payroll for furloughed employees will be assigned under a new Workers’ Compensation Classification Code – 0012.
This modification applies only to employees who are being paid but are not working. Employees that are working remotely do not qualify as furloughed employees. If an employee is requested to perform any duties for an employer, the employee is not deemed a paid furloughed employee for the time period that they are performing duties for the firm. That payroll needs to be assigned to the classification applicable to the work being performed.
Navigating these Workers’ Compensations rules and revisions can be confusing. During these challenging times, we recommend getting advice from a knowledgeable insurance agent regarding the specific details for your firm.
Rate Change for 2021
More good news for design firms in regards to Workers’ Compensation. While the specific rates for each class code have not yet been announced, the latest filing from NCCI proposes an average statewide rate decrease of 5.7%.
The downward trend for rates continues next year thanks to favorable loss experiences from policy years 2017 and 2018. If approved, it would be the fifth rate decrease for Florida since 2016. Last year, Workers’ Compensation rates decreased an average of 7.5%.
The Florida Office of Insurance Regulation is currently reviewing the NCCI proposed rate structure. If approved, the new rates will go into effect for new and renewal policies beginning January 1, 2021.
Speaking of 2021 – the new year is right around the corner. I think many of us are looking forward to seeing changes with the new year! Meanwhile, consider if any of the payroll modifications can help your firm now. As with many of the issues arising from this pandemic, the importance of detailed record keeping is essential.
Mark Jackson is a founding partner of JCJ Insurance Agency. Mark specializes in professional liability and other commercial insurance for architects and engineers. Mark provides an array of services, including contract review and continuing education seminars. He serves as President for a/e ProNet, a network of insurance brokers and attorneys who specialize in serving design professionals. Mark graduated from UCF and has earned the Associate in Risk Management (ARM) designation from the Insurance Institute of America.