San Francisco Apartment Association

Sacramento Report

“Upcoding” Workers’ Compensation Classifications

by Monica Williamson

The California Apartment Association has learned that the Workers’ Compensation Insurance Rating Bureau is applying a new classification standard for resident managers, which will negatively impact the rental housing industry. Some owners and property managers have been notified by the WCIRB that the employee classification (8047) that has traditionally been applied to off-site (regional) managers is not applicable unless each and every property in the property company’s portfolio has an on-site manager. Instead, if there is no on-site manager at any multifamily housing within the owner or management company’s portfolio (even if it is under 16 units) then the WCIRB argues the remote property manager must be coded under the 9011 classification. The 9011 classification results in a higher workers’ compensation premium.

Background

California employers are required to provide workers’ compensation benefits to their employees (California Labor Code Section 3700). All employees (and subcontractors—including the neighborhood boy who mows the lawn) who do not have their own policies must be covered by their employer’s workers’ compensation policy. Employers who fail to provide workers’ compensation coverage are violating state law. The Department of Industrial Relations has authority to enforce the workers’ compensation requirement and may close down a business until coverage is obtained. Coverage can be purchased from a licensed insurance company or through the State Compensation Insurance Fund. (SCIF is a state-operated entity that exists in order to transact workers’ compensation on a nonprofit basis. SCIF competes with private workers’ compensation insurance companies for business and also operates as the insurer of last resort if private companies are not willing to offer workers’ compensation insurance.)

Premium Calculations

Workers’ compensation premiums (rates) are based on the gross wages of each class of employee (California’s workers’ compensation system categorizes employees into more than 500 job-specific classifications). Classifications are generally developed and assigned by the WCIRB. Insurers then use those classifications to set rates for their policy holders. California law dictates whether or not a specific type of compensation is considered for purposes of premium calculation; the list below defines compensation that is and is not included for purposes of premium calculations.

Included:

  • Sick, vacation and holiday pay;
  • Bonuses and commissions;
  • Automobile allowances;
  • Regular overtime pay;
  • Shift differential pay;
  • Idle time or standby/on-call pay;
  • Meals and lodging in lieu of wages; and
  • Certain pension/retirement plans: employee’s voluntary contributions to a pension/retirement plan, made through regular payroll deductions.

Not Included:

  • Tips;
  • Reward for discovery or invention;
  • Auto value; auto expense reimbursement;
  • Overtime excess pay;
  • Severance pay;
  • Health and welfare paid by employer;
  • Meals and lodging expenses; and
  • Certain pension/retirement/cafeteria plans: employer contributions to a pension/retirement plan, and salary reductions to fund the welfare or fringe benefit portion of a Section 125 cafeteria plan.

State Compensation

Insurance Fund

The California workers’ compensation program currently operates under an “open” rating system. This means individual companies are free to establish rates based on their ability to cover losses and expenses in each classification (occupational business class).

Rental Property Classifications & Audits

The WCIRB lists two primary classifications applicable to property managers (the latter has two subcategories):

Classification 9011: Property Management/Operation

This classification applies to apartment (or condominium) operations where there are on-site managers, resident employees and resident clerical employees.

Classification 8740(1): Apartment (or Condominium) Operation
This classification applies to off-site property management supervisors who exercise direction through resident or on-site managers. This classification also applies to off-site property management supervisors who oversee apartment or condominium complexes at which all operation, maintenance, and care activities are conducted by separate concerns and no payroll is assignable to 9011.

Classification 8740(3): Building Operation
This classification applies to off-site property management supervisors who exercise direction through resident or on-site property managers.
Insurers are required under California law to conduct a payroll audit at specified intervals. (Some policies are audited annually, while smaller employers may be audited less frequently.) Payroll audits are intended to:

  • Ensure policyholders are charged the correct amount of premium;
  • Update details that may affect a policyholder’s coverage and rates; and
  • Comply with mandated data-gathering requirements.

The Trend

With the above background in mind, the manner in which an employee is classified makes all the difference in determining the workers’ compensation premium paid. Recently, the WCIRB has argued that when there are no on-site personnel, the off-site person (regional manager) essentially becomes the on-site person because they must respond to calls for service at the property and be on the property to conduct routine business. As such, the WCIRB has reclassified these individuals in the 9011 classification, which brings a higher premium than the 8047 classification (which was previously used to classify individuals within this group of employees).

To the extent an owner can prove that the off-site manager has not in fact assumed the more extensive duties of an on-site manager (responding to minor maintenance calls, lock-outs, etc.) and in fact simply oversees the operations, it may be possible to mitigate the higher classification. In such an instance, a property owner must have evidence to substantiate their allegations—contracts with maintenance companies and property management companies or others who assume any day-to-day responsibilities on the property may be helpful.

The opinions expressed in this article are those of the author and do not necessarily reflect the viewpoint of SFAA or SF Apartment Magazine. Monica Williamson is CAA’s vice president of public affairs. Copyright © 2007 by SF Apartment Magazine. All rights reserved.