Canadian Payroll Reporter

News Published 12 times a year by Thomson Reuters Canada Ltd. Subscription rate: $179 per year Customer Service Tel: (416) 609-3800 (Toronto) (800) 387-5164 (outside Toronto) Fax: (416) 298-5106 E-mail: carswell.customerrelations @thomsonreuters.com Website: www.carswell.com One Corporate Plaz 2075 Kennedy Road Toronto, Ontario, Canada M1T 3V4 Director, Carswell Media Karen Lorimer Publisher John Hobel Associate Publisher/Managing Editor Todd Humber Editor Sheila Brawn sbrawn@rogers.com Lead Editor Sarah Dobson Assistant Editor Mallory Hendry (on leave) Assistant Editor Anastasiya Jogal Marketing Manager Mohammad Ali mm.ali@thomsonreuters.com (416) 609-5866 Circulation Co-ordinator Keith Fulford keith.fulford@thomsonreuters.com (416) 649-9585 Payroll Reporter Can R adian a www.payroll-reporter.com ©2015 Thomson Reuters Canada Ltd ISBN/ISSN: 978-0-7798-2810-4 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted, in any form or by any means, electronic, photocopying, recording or otherwise without the written permission of the publisher (Carswell, a Thomson Reuters business). Return Mail Registration # 1522825 | Return Postage Guaranteed Paid News Revenue Toronto Canadian Payroll Reporter is part of the Canadian HR Reporter group of publications: • Canadian HR Reporter — www.hrreporter.com • Canadian Occupational Safety magazine — www.cos-mag.com • Canadian Payroll Reporter — www.payroll-reporter.com • Canadian Employment Law Today — www.employmentlawtoday.com • Canadian Labour Reporter — www.labour-reporter.com See carswell.com for information September 2015 | CPR 74 per cent of employers would see lower rates American Industry Classifi- cation System (NAICS) that uses "significantly fewer" and larger employer groups. NAICS groups businesses based on type of economic activity and it is up- dated every five years to reflect changes in the North American economy. Using NAICS, the WSIB is proposing to group employers into 22 industry classes. It says some employers would remain in a similar grouping at the class level as they are now, while oth- ers would be grouped differently. Within each class, the board would put employers into risk bands based on their individual risk profile compared to others in their class. The number of risk bands per class would vary from 40 to 83. The new classification scheme would also eliminate the need for employers with more than one business activity to have mul- tiple accounts with the WSIB, with different premium rates. Instead, these employers would be grouped into a single class based on their predominant business activity, determined by the largest percentage of their annual insurable earnings. An exception would apply for temporary employment agen- cies since they supply workers in different WSIB classifications. The board is proposing they have a separate premium rate tied to each class for which they supply temporary workers. Setting premiums: The WSIB says the new framework would more closely tie an employer's premium rate to its own claims experience. The board would update the employer's rate each year to reflect its experience within its industry, something other boards in Canada do to varying degrees. The new framework would use a two-step process to set an average premium rate for each individual class and then adjust it for individual employers based on their own claims experience and insurable earnings relative to the class rate. The first step would be some- what similar to the process the board now uses. It would be made up of three parts: collec- tive liabilities for the costs of new injury and illness claims, past claims costs (including un- funded liability costs) and ad- ministrative costs. "The amount of the three components will vary amongst the 22 proposed classes based on various factors such as the apportionment of the unfunded liability or the projected new claim cost for each class," the board says in a discussion paper. In the second step, the board would look at each employer's risk profile and actuarial predict- ability to determine how much its premium rate should be af- fected by its individual claims experience versus the collective experience of its class. To determine an employer's risk profile, the WSIB would consider an employer's insur- able earnings and the number of claims it had over a six-year period. It would compare the results to the risk profile for the class in which the employer is grouped. Actuarial predictability mea- sures the degree to which the WSIB can rely on an employer's past claims cost to predict its fu- ture outcomes to accurately and fairly set premium rates. For example, if an employer's predictability is calculated at 90 per cent or more on an actuarial predictability scale, the WSIB would base the employer's rate solely on its individual experi- ence and not on the experience of all employers in the class. If it scored between 40 and 50 per cent on the scale, the premi- um rate would be based half on the employer's individual expe- rience and half on the collective experience of its class. If the score was no more than 2.5 per cent on the scale, then 2.5 per cent of the employer's pre- mium rate would be based on its individual experience and 97.5 per cent would be based on the collective experience of its class. The WSIB would use the risk profile and actuarial predict- ability, along with an employer's risk band position, to determine how much an employer should pay based on its own claims ex- perience. In fairness to employ- ers, the board would not require them to start paying new premi- um rates right away. "There may be a difference (varying from a very small to a large variance) between what an employer should be paying as their Employer Target Premium Rate and what the employer is paying under the current sys- tem," the board says in docu- ments describing the proposals. Under the preliminary frame- work, the WSIB says 74 per cent of employers would be see pre- mium rates go down and 26 per cent would see them go up. The WSIB also said the new model would be revenue-neutral, mean- ing the total amount of premium dollars it collects would not change. However, over time, the distribution of premiums may shift among employers based on claims experience. Experience rating pro- grams: Since the new rate-set- ting approach would use an em- ployer's own claims experience (through the risk bands) to set its premium rate for an upcoming year, the board says it would no longer need its experience rat- ing programs, such as New Ex- perimental Rating Plan (NEER), Construction Industry Plan (CAD 7) and Merit Adjustment Program (MAP). These programs use a retro- spective approach rather than the prospective method the board is proposing. Under the current programs, all employers in the same rate group pay the same initial premium rate, but employers may qualify for sur- charges or rebates later once the WSIB compares their expected claims costs to their actual costs. "While a retrospective pro- gram can be more responsive to short-term changes, this also means that there can be signifi- cant changes from year to year that result in employers moving from a surcharge position to a refund position, or vice-versa," the board says. It adds that some employers under NEER or CAD7 have had as much as a 150 to 200 per cent change in their premiums year over year after taking into ac- count experience rating adjust- ments. from WSIB on page 3

• Cover