Upcoming Changes to PA Workers Compensation Treatment of Prevailing Wage Fringe Benefit Payments

On April 1, 2020 the PCRB will be implementing revisions to Basic Manual Rule V- Premium Basis. The most impactful of these changes involves the treatment of prevailing wage fringe benefits paid directly to employees. Below is an explanation of fringe benefits and an overview of how this change will impact policyholders.

Prevailing wage fringe benefits are contributions irrevocably made to a trustee or third party pursuant to a bona fide fringe benefit fund plan or program. Simply put, the contributions made by employers, on behalf of their employees, toward items like life insurance, health insurance, retirement plans, short term and long term disability, holidays, vacations, and other such benefits. Fringe benefit contributions do not include payments to fund Social Security, unemployment compensation, or workers’ compensation programs as they are required by federal, state, or local law.

Currently, the PCRB allows for the exclusion of the fringe benefit amount from the premium calculation on workers’ compensation policies when prevailing wages are paid directly to an employee. Beginning April 1, 2020 these amounts will be included as remuneration (payroll) for premium calculation purposes. Fringe benefits payments made to a separate group insurance product, pension plan, or third party administrator may be excluded. This change will align the PCRB with other jurisdictions around the country.

Policyholders will feel some impact from this new treatment of fringe benefits. With prevailing wage fringe benefits being included in companies’ payroll, clients may experience increases in their workers’ compensation premiums. Along with higher premiums, a higher payroll also increases the expected losses used to calculate experience modifications. An increase in expected losses will drive the experience modification rating lower if all other factors remain the same.

If you have any questions about these changes, please reach out to your Henderson Brothers contact.