PEO Unfriendly Bill SB-820 Sponsored in Florida Senate

Senator Keith Perry of Gainesville (R) is the sponsor of Senate Bill 820, an amendment to Florida Statute 627.192; Workers’ Compensation Insurance; Employee Leasing Arrangements. It is to be effective 7/1/21.

https://www.flsenate.gov/Session/Bill/2021/820/BillText/Filed/PDF

Of particular note in this statute is the relationship between the “employee leasing” (aka Professional Employer Organization/PEO) company and client company when it comes to workers’ compensation insurance. Who bears responsibility for the procurement of workers’ compensation insurance for the client company is outlined as well as who is responsible in the event that an employee is not covered.

It is assumed that the purpose of SB-820 is to close the so-called “gap in coverage” that exists when a business (“client company”) becomes coemployed with a PEO through a master policy PEO arrangement and does not report all of its employees. The ability of the PEO to aggregate non commonly-owned entities is enabled through the concept of coemployment; a legal agreement that speaks to “employee leasing” and the roles and responsibilities of each of the coemployers. This legal arrangement and all the rights that come with it are made certain when the client company reports all of the employees of the client company to the “employee leasing” company at which point they are formally “coemployees” of the employee leasing company and afforded workers’ compensation. Payrolls are also run through the PEO, further cementing the employer/employee status.

This way of procuring workers’ compensation with a PEO as part of a bundled suite of services has worked/works flawlessly for the Florida PEO, the insurance carriers that support them and the client company; until there is fraudulent reporting of employees or lack of actual insurance. Specifically, if the client company chooses to direct employment but not pay the workers’ compensation premiums associated with said employment and an occupational claim occurs, there is no coverage. The PEO or insurance carrier will not cover because there is no doctrine of “insurable interest” (combinability) if the hurt employee was not an employee. This could happen in the “pay under the table” scenarios or the improper use of a 1099 independent contractor designation. These situations also happen when it is found that there are uninsured subcontractors underneath a contractor that uses a PEO. The majority of these occurrences happen in the construction field, where sub-contracting is commonplace, rates are higher and margins tight.

The reality is non-reporting of workers’ compensation payrolls/covered employees or not purchasing workers’ compensation is fraud. Whether the client company was placed through a traditional agent or PEO, it is fraud. “Paying under the table” has been historically commonplace well before PEO was even an industry and is the root issue that needs to be addressed by all stakeholders of the workers’ compensation system.

I know that FAPEO will be reaching out very soon to its constituents to discuss in detail SB-820’s potential impact and what lies next. Making sure that every employee is properly taken care of by the workers’ compensation system as a whole and there is never an uninsured employee for any reason should be the overall goal. I know that the PEO industry will do its part to get there and then some!

Claims Frequency Down in Workers Compensation – NCCI

Great article from Risk & Insurance on claims trends…

http://www.riskandinsurance.com/wc-frequency-poised-continue-long-term-decline/

One of the many beauties of PEO is our ability to follow these same trends two years before the carriers do. Our data has far, far less credibility then what NCCI looks at (“every flip of the coin”), but it is within the policy year (before audit) and the sample is enough to spot outliers and react quicker as a result…

WC Frequency Poised to Continue Long-Term Decline
Following a 2010 uptick, claims frequency has declined for three straight years at an average rate of about 3 percent per year.
By: Nancy Grover | August 18, 2014 • 3 min read
Topics: Claims | Workers’ Comp
downward dollar
Injuries involving the arms and shoulders bucked the trend of declining frequencies of most other body parts over the past five years. That’s among the findings in a new report on claims frequency in the workers’ comp industry.

While the Great Recession was likely responsible for frequency changes in recent years, other factors are now apparent. NCCI has drilled down into the particulars driving recent rates of injuries.

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“The 2010 increase in frequency, the first increase in 13 years, may have been the result of recession-related factors,” said the research brief. “Despite the 2010 uptick, claim frequency resumed its decline in Accident Years 2011, 2012, and 2013. These are very positive signs that suggest that frequency will continue its historical long-term rate of decline.”

The research brief, Workers Compensation Claim Frequency — 2014 Update, expounds on data presented at NCCI’s Annual Issues Symposium earlier this year. The report also includes detailed information on frequency changes by selected claim characteristics and for policies with versus without small deductibles (see box).

Overall Trends
“Claim frequency increased 3.5 percent in Accident Year 2010, the first significant increase in frequency in 20 years,” the report states. “Following the 2010 uptick, claim frequency has declined for three straight years at an average rate of about 3 percent per year.”

Evidence suggests an influx of small lost-time claims contributed to the increase in claims frequency for AY 2010. Workers fearful of losing their jobs may have delayed filing claims in 2009, but then filed them when the economy began to rebound, the authors suggest.

“Despite the 2010 uptick, claim frequency resumed its decline in Accident Years 2011, 2012, and 2013. These are very positive signs that suggest that frequency will continue its historical long-term rate of decline.” — NCCI

One of the changes seen in the most recent figures is the significant decline in frequency of claims above $50,000 in accident year 2012. These claims declined by more than 7 percent, whereas claims between $10,000 and $50,000 declined by 3.1 percent and small claims declined by just 1.4 percent. A closer look reveals two major drivers in the larger claims category.

“Within the Part of Body group, we found that the frequency of lower back claims declined by 11 percent versus 6 percent for all other claims in the category,” the report says. “Similarly, within the Cause of Injury group, we found that the frequency of slip and fall injuries declined by 12 percent versus 4 percent for all other claims in the category.”

Additional Breakdowns
Over the last five years, the frequency of injuries for most body parts declined by 13.9 percent while the frequency of injuries involving multiple body parts declined by 22 percent.

The frequency rate for arm and shoulder injuries, which represent 15 percent of injuries, remained flat. “This may be influenced by an older workforce,” the report suggests, “where rotator cuff injuries are not uncommon.”

In terms of the injury type, frequency for permanent partial and temporary total claims were consistent with the overall decline of 13.9 percent for all injury types while fatal and permanent total claims showed more volatility each year, due to the smaller volume of these claims. The authors note that the figures are based on injury type reported as of first report and that the development of claim counts can differ considerably as they reach ultimate level.

“For example, subsequent to first report, some claims will become fatal claims and others will become PTD claims,” the report explains. “Fatal claim frequency at first report is more than three times higher than permanent total disability claim frequency. However, this difference will decline as claims age since more PTD claims than fatal claims will emerge beyond first report.”

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Sprain/strain, comprising the majority share of claims by nature of injury, declined by 10 percent. That compares to a decline of 17 percent for all other categories combined. The frequency of carpal tunnel syndrome claims dropped by 25 percent, although the rate of decline has slowed in the most recent years.

In terms of the cause of injury, there was a steep drop in the frequency of cumulative injury claims — more than 18 percent. Injuries in the category of cut/puncture/scrape dropped by 23 percent. “A possible explanation is that the types of injuries in both of these categories may be relatively more preventable through loss control and safety measures.”

Nancy Grover is co-Chair of the National Workers’ Compensation and Disability Conference and Editor of Workers’ Compensation Report, a publication of our parent company, LRP Publications. She can be reached at riskletters@lrp.com.
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