As of January 1, 2020, the Workplace Safety and Insurance Board (the "WSIB") will be replacing its current Schedule 1 employer classification system and premium and experience rating programs with a new "Rate Framework". Under the Rate Framework, experience rating programs will be eliminated and employers will instead pay prospective and fluctuating premium rates based on their individual claims experience. As of September 25, 2019, the WSIB started notifying employers of their new 2020 premium rates. This same day, the Ontario Government announced a five-year WSIB premium freeze for all non-profits operating in the province.
Purpose of the Changes
The WSIB's stated purpose of the Rate Framework is twofold: (i) to establish employer classifications and premium rates that more accurately reflect the risk presented by individual employers; and (ii) to incorporate stability measures to limit premium rate volatility.
By attempting to ensure that premiums better reflect the accident and claim histories of individual employers, the WSIB intends to create further incentive for employers to invest in occupational health and safety efforts that reduce workplace injuries.
The Impact of the Rate Framework
A summary of the Rate Framework and its changes to the WSIB's current system of employer classifications and costing is set out below.
Currently, Schedule 1 employers are classified based on their business activities into one or more WSIB "Classification Units", each of which falls under one of 155 different "Rate Groups." Premium rates are fixed at the Rate Group level.
Under the Rate Framework, the system of Rate Groups and Classification Units will be replaced with over 900 North American Industry Classification System ("NAICS") Codes. Each NAICS Code falls into one of 34 "Classes" or "Subclasses" listed in the amended Schedule 1 of O. Reg. 175/98: General. An employer's claims experience under their prior Classification Units will be transferred to the corresponding NAICS Codes under the Rate Framework. Employers whose business activities fall under Schedule 1, Part I will be subject to mandatory coverage and will be required to pay premiums.
Employers whose business activities fall under Schedule 1, Part II, will not be subject to mandatory coverage. However, these employers may still "opt-in", and apply to the WSIB for Schedule 1 insurance coverage. The Rate Framework will not impose any significant changes for Schedule 2 employers.
The WSIB's updated Employer Classification Manual for the Rate Framework is available on its website, and employers should now have received their NAICS Code(s) from the WSIB. The NAICS Code-based classification system will group certain types of business activities differently than under the current system. As a result, certain business activities may no longer be subject to mandatory coverage under the insurance plan. Employers should take the opportunity to review their NAICS Code descriptions to determine whether they are properly classified and covered.
Single or Multiple Premium Rates
Most employers carry on a single business activity and will be classified in a single NAICS Code. Where that is the case, under the Rate Framework the employer's premium rate will be based on the Class that corresponds with the employer's NAICS Code.
However, some employers may have more than one business activity and, therefore, multiple NAICS Codes. Depending on the particular NAICS Codes and how the particular employer's operations and payroll are structured, an employer with multiple NAICS Codes may pay one, or multiple, premium rates.
As above, effective September 25, the WSIB started notifying employers of their premium rate information for 2020. Employers should take the opportunity to review their premium rates closely to ensure they understand how they have been calculated and that they are correct.
Experience Rating Programs and Cost Windows
Currently, the length of time that a workplace injury stays "on the books" and impacts an employer's WSIB costs varies depending on which experience rating program the employer is enrolled in. For example, NEER has a four-year cost window while CAD-7 has a five-year cost window.
These experience rating programs will be eliminated under the Rate Framework, and all employers will be subject to a six-year cost window. Employers will be issued their final experience rating program statements, along with any rebates or surcharges, effective the following dates:
|Experience rating program||Final statement issued||Final rebate||Final surcharge|
|MAP||December 2018||2019 premium year||2019 premium year|
|NEER||November 2020||January 1, 2021||December 31, 2020|
|CAD-7||September 2020||November 2020||October 31, 2020|
The WSIB has indicated that any adjustments to an employer's current experience rating (such as by way of an appeal) will be applied retroactively within the appropriate window.
Under the Rate Framework, employers will be assigned an "Actuarial Predictability" rating based on the number of claims and quantum of insurable earnings incurred during the six-year window. This rating impacts how an employer's individual claims experience will be weighted against the collective claims experience of their Class/Subclass when calculating the employer's premium rates. Actuarial Predictability will also impact both an employer's per-claim cost limit and how significantly their individual premium rate(s) will deviate from the class average.
Determining Employer Level Premium Rates
Currently, employers are required to pay fixed annual premium rates, with the possibility of an additional rebate or surcharge under the NEER or CAD-7 experience rating programs.
Under the Rate Framework, the experience rating programs are being eliminated and replaced with fluctuating premium rates. For each upcoming year, the WSIB will determine a "Class Average Premium Rate" for each Class/Subclass based on the claims experience of all employers in the Class/Subclass. Each employer's individual premium rates will then be set in relation to the Class Average Premium Rate, taking into account each employer's individual claims history (including claims costs) and how that compares to other employers in the Class/Subclass. Employers will then be assigned to a "Risk Band", which represents a premium rate calculated as 5% increments above or below the Class Average Premium Rate. By way of example, if the WSIB assigned a class average premium rate of $1 per every $100 of insurable earnings, there would be Risk Bands with a premium rate of $0.95, $0.90, $0.86, etc.
Using the same method, the WSIB will determine a "Projected Premium Rate"/"Projected Risk Band" for each employer. This represents how much the employer's premiums are expected to increase or decrease in the future. This will help employers predict their future workers' compensation costs and budget accordingly.
In addition, on September 25, 2019, the Ministry of Labour announced that the WSIB will freeze the premium rates for Ontario non-profit organizations for a five-year period. As a result, when the Rate Framework comes into effect, approximately 2,700 non-profit organizations will keep their current premium rates and a further 1,600 non-profit organizations will have their rates reduced. The affected employers include daycares, legions, charities, women's shelters, art galleries, and hospices, among others.
Transitioning into the Rate Framework
For each Classification Unit under which an employer's business activities were classified before January 1, 2020, the WSIB will attribute the employer's insurable earnings and claims experience from 2013 through 2018, and any experience rating adjustments the employer received in 2016 through 2018, to a corresponding NAICS Code and related Class/Subclass. For each Class/Subclass, the WSIB has determined what Risk Band the employer would fall under in 2019 if the Rate Framework were already in place. Then, based on the employer's claim experience over a rolling six-year cost window, from 2020 onward each employer's Risk Band (and therefore premium rate) may move up or down according to the following rules:
- An employer's Risk Band in 2020 cannot be higher (i.e. a higher premium percentage rate) than what its Risk Band would have been in 2019, but its premium rate can move downward any number of Risk Bands.
- An employer's Risk Band for 2021 can move a maximum of one Risk Band (i.e. 5% in premiums) higher than its 2020 Risk Band, or move downward any number of Risk Bands.
- An employer's Risk Band for 2022 can move a maximum of two Risk Bands (i.e. 10% in premiums) higher than its 2021 Risk Band, or move downward any number of Risk Bands.
From 2023 onward, employers will generally only be able to move a maximum of three Risk Bands (i.e. 15% in premiums) higher or lower from the previous year's Actual Risk Band. Employers are, therefore, in the best position to reduce premium rates during the years 2020-2022. An employer's pre-Rate Framework claims experience will have an important impact on its premium rates under the Rate Framework. As such, it is advisable for employers to carefully consider whether they have any costly claims on their record from 2013-2018 and, where there is a reasonable chance of successfully appealing those claims, taking proactive steps to initiate the appeal process.
Under the Rate Framework, the WSIB will be implementing a number of accountability programs aimed at employers the WSIB identifies as having comparatively poor claims experience. As part of these programs, the WSIB will engage with the employer and provide resources and other supports aimed at improving the workplace's health and safety record. Where the employer fails to demonstrate improvement, the WSIB may penalize the employer, either by removing the limits on how much the employer's premium rates can increase or by directly increasing the employer's premium rate.
Temporary Employment Agencies
Special classification rules will apply for any employer that carries on business as a Temporary Employment Agency ("TEA") supplying workers to another employer on a temporary basis. Under the Rate Framework, all TEAs are considered Schedule 1 employers and will be assigned separate premium rates for: (i) the business activity of supplying workers; and (ii) each Class/Subclass of business operation for which it supplies workers. Where the client's operations are not covered under Schedule 1, the WSIB will classify the operation in whichever Class/Subclass the WSIB determines best represents the client's business activity.
Special rules will apply governing TEA's premium rates from 2020-2022.
Check the Box
Employers have until January 1, 2020 to familiarize themselves with the Rate Framework before it comes into effect.
In the interim, the WSIB continues to release new guidance materials and updated policies on its website to help employers prepare. Additionally, employers should be on the lookout for any mail sent by the WSIB or updates to their eService account, as there will likely be key information related to their classification and/or premium rates. Employers should have already received their NAICS Codes from the WSIB and, if they have not already, can expect to be advised of their premium rates for 2020 shortly.
Upcoming Complimentary Webinar
To assist employers to prepare for these upcoming changes, Carissa Tanzola, James Jennings and Cassandra Ma will be hosting a complementary webinar on November 26, 2019. In this interactive session, we will help employers familiarize themselves with the ins and outs of the new classification and costing system, and provide practical insights on how best to get your workplace ready for the impending changes.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.