Employers May Exclude Payroll to Employees Not Working for Workers’ Comp: NCCI

Businesses that have suspended operations due to COVID-19 but continue to pay employees who are at home but not working will not have to include the payroll paid to these employees in the calculation of their workers’ compensation premium.

The National Council on Compensation Insurance (NCCI) is preparing a reporting code that will be filed for approval by state regulators. The organization hopes to file it this week.

NCCI, the industry’s largest workers’ compensation data and rating organization, will file the change in the 36 states where it is the official rating bureau.

“We’ve had a meeting already with the insurance regulators telling them that it’s coming and sharing some information with them so that they’re ready for it and we hope that they’ll do a quick approval, Jeff Eddinger, senior division executive, Regulatory Business Management, for NCCI told Insurance Journal.

California’s rating bureau has already announced its own rule that this payroll paid during the shutdown will be excluded from reportable payroll. Other states with their own rating bureaus or monopolistic state funds are expected to follow suit.

Citing a desire for consistency across states, the North Carolina Rate Bureau told Insurance Journal it is waiting to see the NCCI rule change and will likely file that language for use in North Carolina. Indiana’s rating bureau said it plans to do the same.

The rule change is for payroll for people who can’t do their normal jobs from home, but are still getting paid. Without this rule change, that payroll would be included in calculating the employer’s workers’ comp premium. A workers’ comp premium is based on payroll.

“The rule change is going to basically take the payroll for that period of time where the worker’s furloughed and remove it from the calculation,” said Eddinger,

“You can make an argument that while they’re not doing their job, they don’t need workers’ comp coverage so the employers don’t need to pay the premium for that time.”

The trade-off is that a company that excludes an employee’s payroll can’t report any claims for that employee, Eddinger added.

The rule will be retroactive, most likely to March 1. How long the code will remain available will depend on how long shutdowns are in effect.

He said NCCI considered using an existing code for idle workers but determined a new rule would be better.

In another change, NCCI will also begin tracking COVID-19 related claims.

Eddinger does not think the payroll rule change will have a material impact on workers’ compensation carriers.

“It’s like hitting the pause button so you’re not charging premiums, but you also don’t expect any claims so in the end you think that it’s just going to be a wash,” he said.

It’s similar to the situation with auto insurers giving discounts on premiums for certain months, knowing that there will be less traffic and thus fewer claims.

Here is how NCCI’s explains the move on its website:

“NCCI recognizes that circumstances around COVID 19 are extraordinary and warrant an expedited rule change to address the question of payroll for employees who are being paid but are not working as it relates to the basis of premium. If approved, this rule change will be distinct from “idle time” under our current Basic Manual rules (Rule 2-F-1), and a corresponding statistical code 0012 will be created for reporting this payroll. This payroll will not be used in the calculation of premium.”

NCCI has a COVID Resource Center on its website that includes answers to frequently asked questions and a new analysis of the economics impact of coronavirus on the workers’ compensation industry.

Topics Commercial Lines Workers' Compensation Business Insurance