New Experience Rating, Physical Audit Levels Set

Starting in 2020, California has established a number of new changes to X-Mod calculations, physical audit levels, and dual-wage class thresholds.

X-Mod Calculations and Audits

The threshold for California employers to be eligible for experience rating (X-Mod) has been reduced by order of the state insurance commissioner. Commissioner Ricardo Lara in September approved the recommendations by the Workers’ Compensation Insurance Rating Bureau to lower thresholds for determining eligibility for experience rating and when a carrier needs to perform a physical audit of an employer’s payroll records.

The threshold for physical audits that takes effect for policies incepting on or after Jan. 1, 2020 will be $10,500 in annual premium, a drop from $13,000. This means that any employer with an annual workers’ comp premium of $10,500 or more will be subject to a physical audit at least once a year.

“Physical audit” is defined as an “audit of payroll, whether conducted at the policyholder’s location or at a remote site, that is based upon an auditor’s examination of the policyholder’s books of accounts and original payroll records (in either electronic or hard copy form), as necessary to determine and verify the exposure amounts by classification.”

Additionally, the threshold for experience rating or to have an X-Mod, has been reduced to $9,700 in annual premium from $10,000.

The eligibility rating threshold is the amount of payroll developed during the experience period in each classification multiplied by the expected loss rates for each class. If the total for all assigned classes is at or above the threshold, then the employer is eligible for an X-Mod.

Changes to dual-wage class codes

The insurance commissioner in September also approved the Rating Bureau’s recommendations for changes to a number of construction dual-wage class codes.

While most workers’ comp classes have one rate, in some classes the difference in claims costs between high- and lower-wage workers is so great that a dual-wage classification is needed. In those cases, the workers above the threshold rate are assigned one rate, while those below that threshold are assigned a higher rate.

This is usually because the higher-wage workers are generally more experienced and tend to suffer fewer workplace injuries compared to those below the threshold.

The new thresholds are for 14 construction classifications, and any workers above the threshold will have a lower rate applied.

Classifications affected