Employers with a high volume of hourly workers should brace for an increase in workers’ compensation costs as California raises the statewide minimum wage to $15.
The deal was struck between California lawmakers working in tandem with labor unions. According to terms of the legislation, the wage will increase incrementally, starting at $10.50 and gradually rising to the full $15 by 2022. They also allow legislators to avoid bringing the issue to a ballot.
The increase affects 43% of the state’s workforce and makes California’s minimum wage the highest in the country, though other municipalities like San Francisco and Seattle already have $15 wages.
“The plan raises the minimum wage in a careful and responsible way and provides some flexibility if economic and budgetary conditions change,” Governor Jerry Brown said in announcing the deal Monday.
Workers’ compensation professionals have been watching the new law advance with interest. Historical evidence has indicated that higher wages often mean higher workers’ compensation premiums – particularly for companies that rely on minimum wage workers.
“If you’re writing a lot of [workers’ comp] business with minimum wage earners, such as in retail, you’re going to have a major concern if you’re an underwriter,” Joe Picone, a claim consulting practice leader at Willis North America’s risk control and claim advocacy practice, told industry reporters when a similar issue reached Illinois last spring.
The reasoning lies with the inevitable rise in payroll and higher indemnity benefits that occur with higher hourly wages, explained Stephen Schneider of the American Insurance Association. Specifically, most states base benefits on two-thirds of a worker’s average weekly wage.
“Any time you increase payroll, there’s a slight uptick or a slight modification in workers’ compensation, whether it’s benefits or premiums,” Schneider said.
Agents should be prepared for those changes and advise clients accordingly. For some, Picone said, it could mean the choice to eliminate jobs in order to keep their comp costs under control.
