Topic:
CONSTRUCTION INDUSTRIES; WORKERS' COMPENSATION;
Location:
WORKERS' COMPENSATION - COSTS;

OLR Research Report


The Connecticut General Assembly

OFFICE OF LEGISLATIVE RESEARCH




WORKERS' COMPENSATION PREMIUM

CREDITS FOR CONSTRUCTION

CONTRACTORS

Judith Lohman

Principal A94-R-0720

naly1, 1994

SUMMARY

Premium credit programs provide a percentage reduction in a construction contractor's entire workers' compensation insurance premium based on the wages he pays to his construction employees. Premium revenue lost through the credit is recovered in two ways: through an increase in each participating contractor's own experience rating or through an increase in premiums for all construction classifications.

Twelve states currently have construction premium credit programs for contractors who pay higher-than-average wages. The programs attempt to address complaints by construction unions and unionized and other high-wage contractors that the current insurance practice of basing workers' compensation premiums on total payroll is a disincentive to pay high wages, allows low-wage contractors to undercut bids, and penalizes contractors for complying with state and federal prevailing wage laws.

The minimum average wage to qualify for a credit in the 12 states ranges from $10 to $18 per hour. Qualifying wages are based on average construction wages, average overall state wages, or the maximum workers' compensation benefit. Maximum credits range from 20% to 30%, depending on the state. Florida began its program in 1984 but the other 11 states all began theirs between 1990 and 1993. Some programs were required by state legislation but the majority were approved by state insurance regulators under their existing authority. Participation rates in the states that compile such information ranges from 2% to 25% of all contractors.

The effect of a credit program in Connecticut depends on the number of contractors who could qualify and that, in turn, depends on how the minimum qualifying wage level is set. The methods used by other states would yield minimum qualifying wages of $16.50 to $24.75 per hour. All of these amounts are substantially higher than qualifying wage levels used in the other states.

It appears that a carefully structured credit program could reduce costs for high-wage contractors without substantially increasing premiums for all construction employers. Such a result would make the construction market somewhat more competitive and could produce savings in local and state government projects covered by prevailing wage laws. Once such a program were in place, there might be pressure to lower the qualifying wage or expand the covered classifications to encompass more contractors. We note that some states started with fairly high qualifying wages and later lowered them. If the number of contractors receiving the credit becomes too large, the overall premium increase needed to offset the credits could become significant.

HOURS WORKED VS. TOTAL PAYROLL

Workers' compensation premiums are set using many variables but all premiums are pegged to the insured employer's total payroll. Premiums are commonly expressed in dollars per hundred dollars of payroll. Thus, two employers with the same insurance company, the same safety record, and covered employees doing exactly the same job may still have different workers' compensation costs if one employer pays higher wages than the other. The rationale for basing premiums on wages is that workers' compensation benefits are partly tied to a claimant's earnings and thus, total payroll provides a good measure of potential losses or risk.

Contractors and unions have argued that basing premiums on total payroll, while it may be valid for most industries, is unfair for the construction industry. Many construction workers work for several different employers throughout the year and most are unemployed or work short hours for parts of the year because of the seasonal nature of construction work. When they work, construction workers, especially union members, receive relatively high pay, partly to compensate for the "down times" of the construction year. Basing contractors' workers' compensation premiums on these high wages, it is argued, allows insurance companies to collect more money than they need to cover actual risk because the construction workers' exposure to workplace hazards and injuries is only intermittent. For construction employment, they say, it would be fairer to base premiums on the number of hours worked by each covered employee, thus removing the penalty for paying high, union wages.

Another argument for some type of construction industry adjustment rests on the prevailing rate laws. The federal government and almost half of the states have laws requiring contractors to pay higher, prevailing wage rates to workers on government construction jobs. Prevailing wage laws, which apply only to construction jobs, serve to increase workers' compensation premiums for contractors even when they are not working on public jobs because they inflate total payrolls.

Insurers and workers' compensation rating organizations oppose changing the basis for contractors' premiums from payroll to hours because of the administrative and auditing difficulties involved and because they believe hours are not as good a way to measure insurers' risk as total payroll. Indemnity (i.e. wage replacement) benefits are still about 60% of workers' compensation losses and, according to the National Council on Compensation Insurance (NCCI), a national rating organization, there is a correlation between higher wages and higher medical expenses (see NCCI letter dated September 21, 1994, Appendix I).

PREMIUM CREDIT PROGRAMS

As an alternative to basing contractor premiums on hours worked, 12 states have adopted a system of giving credits on workers' compensation premiums to contractors who pay high wages. These credit programs appear to avoid the administrative problems that arise from shifting to premiums based on hours worked while still addressing some of perceived penalties produced by prevailing wage laws and payment of high hourly wages for seasonal construction jobs. The 12 states that currently have programs are Delaware, Florida, Illinois, Maryland, Massachusetts, Minnesota, Missouri, Montana, New Mexico, New York, Oregon, and Pennsylvania.

The 12 are a good cross-section of states. They are located in all regions of the country. Florida, Illinois, Maryland, Missouri, New Mexico, and Oregon use NCCI to calculate workers' compensation insurance premium rates; Massachusetts, Minnesota, Montana, New York, and Pennsylvania use state rating organizations; and Delaware uses the Pennsylvania rating bureau. Maryland, Montana, New Mexico, New York, Oregon, and Pennsylvania have state-run workers' compensation insurance funds that compete with private insurers in the state.

Florida, Massachusetts, Montana, New Mexico, and Pennsylvania adopted their credit programs in response to legislative enactments. The rest were instituted by state insurance authorities using their existing powers. Florida's program, which went into effect in 1984, is the oldest. All the other programs date from the 1990s. In each case, unionized contractors and construction unions were major catalysts for adopting the programs. All of the states, except Florida, have prevailing wage laws. Florida repealed its state prevailing wage law in 1979, but Broward county and several cities in Florida have local prevailing wage requirements.

The premium adjustment programs in the 12 states have many common elements. They all operate basically the same way, regardless of whether or not premiums are calculated by NCCI. We describe both the common elements and the state-by-state variations below. Not all states have information about the effects of their programs. For those that do, the percentage of participating contractors varies from a low of 1.8% to a high of 25%. The minimum qualifying wage for a credit also varies widely from a low of $10 per hour to a high of $18.

COMMON ELEMENTS OF STATE PREMIUM CREDIT PROGRAMS

General Design

Premium credit programs are designed to vary a construction contractor's workers' compensation insurance premium by giving percentage credit against those premiums to contractors who pay higher-than-average wages for construction jobs. The higher the wage, the bigger the credit. Although only wage rates the employers pay for construction classifications are counted to determine the size of the contractor's credit, the credit itself applies to the contractor's entire workers' compensation premium in the state for both construction and nonconstruction employees. The premium credit is taken before any other discounts the contractor receives from the insurance company.

Basis for Credit

The basis for the credit is total wages (in all states but New Mexico, wages excludes premium pay for overtime) and total hours worked in the third quarter of the calendar year (in New Mexico, it is an entire calendar year) for each construction classification as reported to the Internal Revenue Service. If the contractor did not operate during the third quarter, then either the last completed quarter before the policy begins or, if none, the first completed quarter after the policy begins is used. The credit is calculated by dividing the total payroll, excluding overtime, by the total hours worked. Unless the contractor's records show a different workweek, a 40-hour week is generally assumed.

The percentage credit for construction classes is determined by consulting a table. This percentage is first applied to the dollar premium attributable to construction classes and then the result is divided by the total premium for the whole policy to arrive at the overall percentage credit. For example, assume a contractor pays a total workers' compensation premium of $1,500 per year for all his employees of which $1,350 is attributable to employees in construction classifications. Assume also that, according to the wage and credit table, he is eligible for a 10% credit for his construction classes. This contractor's overall policy credit would be 9% ($1,350 x 10% = $135/$1,500 = .09).

Adjustments for Premium Shortfall

Experience Rating. In calculating workers' compensation premiums for individual employers, the so-called "manual" or standard rate for each classification is adjusted by an experience rating (also called an experience modification or "mod") that recognizes employers' different safety records (usually over the preceding three or five years). Experience rating compares each employer's own safety record against that represented by the standard rate. Thus, a better-than-average employer may receive an "experience modification factor" of 90% (or .9) of the rate, meaning that his safety record will give him a 10% savings on his premium. Conversely, an employer with a worse-than-average record may have an "experience mod" of 110% (or 1.1), meaning he will pay 10% more than the average employer of his class.

In order to make up the premium shortfall resulting from the construction credits, some states increase the experience ratings of the contractors receiving the credit to compensate. The effect of the adjustment is to reduce each contractor's net credit slightly so that, for example, a contractor eligible for a 30% credit will actually receive a net reduction of 26% or 27% after his experience rating is adjusted. These adjustments to experience ratings can be a disincentive for otherwise eligible contractors to participate in a credit program because, by making their safety records look worse, it can make it more difficult to get insurance. Some states prohibit contractors with already high experience ratings from participating for precisely this reason.

Overall Rates. In addition to adjusting experience ratings, some states adjust the standard rates for construction classes, either by a flat amount across the board or by different amounts depending on the classification. These increases in rates affect all contractors who employ workers in those classifications, whether or not they are eligible to receive a credit.

Administration

All the states administer their programs in roughly the same way. Insurers must send a letter describing the program to any insured who has a workers' compensation policy for one or more covered classifications. Contractors provide wage and hour information directly to NCCI or the state rating organization, which then calculates the employer's average hourly wage for each covered classification and figures out his credit and the change in his experience rating. NCCI or the state rating organization sends these results to the insurer, which uses them to calculate the premium. It is the insurer's responsibility to verify the original wage data provided by the employer by auditing the employer's payroll records. Credits must be renewed annually.

STATE INFORMATION

Although all 12 states run their construction premium programs in a similar way, each program does have unique features. These variations are summarized below. Copies of rating organization descriptions of the state programs may be found in Appendix II. Copies of some state statutes mandating credit programs are found in Appendix III. Information on state programs provided by NCCI is part of Appendix I.

Florida

Florida is an NCCI state and was the first of the 12 states to adopt the premium adjustment program. The program was instituted in response to legislation and took effect January 4, 1984. Florida's program applies to contractors whose average construction class wages are at least $10 per hour. The credit ranges from 5% to 25%, with a 25% credit for any contractor whose average wages are at least $17.50 per hour. According to NCCI, 16% of the state's contractors participate in the program and the average credit for 1992 was 9.9%. In order to recapture the lost premium, NCCI computes a separate "offset factor" for each covered classification, thus slightly increasing the overall premium rate for each construction classification above what it would otherwise be.

Illinois

Illinois is an NCCI state. Its credit program began on September 1, 1992 and was broadened a year later. It was instituted by the state's Insurance Department without specific legislation. It applies to all contractors with policies in which at least 50% of the premium is attributable to any covered contracting classifications and whose experience modification is 1.10 or less on and after September 1, 1992; 1.05 as of September 1, 1993; and 1.00 as of September 1, 1994. Credits range from 3% (originally 6%) to 26% (originally 20%), with the minimum qualifying wage being $14 (originally $18) per hour. A contractor paying more than $32 per hour receives the maximum credit of 26%.

According to NCCI, the average credit for 1992 was 8%. There is no readily available data on the percentage of Illinois contractors who use the program.

Maryland

Maryland is an NCCI state. It began its program on January 1, 1993. It was instituted by the state insurance division without specific statutory authorization. The program is to expire on January 1, 1997 unless it is specifically extended. It applies to policies for which more than 50% of the premium is attributable to construction classifications and to contractors whose experience modification is 1.3 or less. The credit ranges from 10% to 30% and applies to contractors with average hourly wages of $15 per hour or more. Contractors paying average wages above $25 per hour receive the maximum 30% credit.

As part of the program, the state insurance division established a review committee to monitor and evaluate the program at least annually. The committee is made up of two NCCI representatives, one representative of the building trades who has signed a union contract, and one building trades representative who is not a party to a union contract.

NCCI has no information on the average credit participants receive or the percentage of contractors that use the program.

Massachusetts

The Massachusetts program went into effect January 1, 1991. In 1985, the state legislature passed a law requiring the insurance commissioner to adopt a mechanism to distribute workers' compensation premiums more equitably among higher and lower wage employers. The law required the commissioner to use experience rating credits, payroll caps on premium computations, or any other method.

The Workers' Compensation Rating and Inspection Bureau of Massachusetts administers the program and calculates the credits according to the same procedure followed by NCCI in its states. The credit range is 5% to 25% and the minimum wage for receiving a credit is $18 per hour. To receive the maximum credit of 25%, a contractor must pay average wages exceeding $28 per hour. The lost premium is offset by adjustments to experience modifications and across-the-board rate changes for covered classifications.

We have written to the Massachusetts rating bureau for information regarding average credits and number of participating contractors and will forward the reply when we receive it. Massachusetts uses the NCCI classification system.

Minnesota

The Minnesota program was instituted on October 1, 1992. According to Don Baker of the Minnesota Insurance Department's Policy Analysis Division, the program was the result of a proposal by the Minnesota Association of General Contractors, which represents union construction contractors. There was no specific statutory mandate for the program.

Originally, contractors who pay average wages of more than $12 per hour were eligible for the credit program but, according to Sharon Bye of the Minnesota Workers' Compensation Insurers' Association, the state rating organization, that minimum was increased to $13.60 per hour in 1994. The minimum qualifying wage is set at 10% below the state's average contracting wage.

To determine average hourly wages for the credit, Minnesota uses hours worked and gross wages (excluding overtime, sick, vacation, and holiday pay but including salaries, wages, commissions, and bonuses) paid to each employee in a contracting classification for the previous calendar year. The maximum annual salary includable for each executive officer, partner or sole proprietor is $41,600. Salaried employees are assumed to work 40 hours per week.

Credits range from 5% to 25% and are applied to each contractor's total workers' compensation premium. The credit is calculated and the credit program is otherwise administered in the same way as it is in NCCI states. Lost premium is made up by calculating a separate premium adjustment for each classification covered by the program. These adjustments currently range from 1% to 1.284%.

The average reduction in the base premium for participating contractors is 10.2% No information is available on the percentage of the state's contractors who participate in the program. Minnesota uses NCCI's classification system.

Missouri

Missouri is an NCCI state. The Missouri credit program was effective on January 1, 1990 and was instituted by the Missouri Insurance Department under its regular statutory authority. The Missouri program is available to contractors who pay more than $12 per hour to their construction employees and whose experience modification is less than 1.06. Credits range from 5% to 20%. To receive the maximum 20% credit, a contractor must pay an average of at least $21 per hour

The lost premium is made up by an increase in rates for all contracting classes. NCCI has no information on the average credit or the percentage of Missouri contractors who participate.

Montana

Our information about the Montana program comes from Suzie Shute of the Montana State Fund. Montana implemented a premium credit on July 1, 1992 in response to a state law. Credits range from 8% to 22%. The minimum wage level for receiving a credit is $13.98 per hour. To receive the maximum credit, a contractor must pay at least $20.98 per hour. These wage level qualifications will apply through September 30, 1995. The minimum wage level is set at 150% of the state's average weekly wage divided by 40. To qualify, at least 50% of a contractor's total workers' compensation premium must be attributable to covered construction classes.

According to Shute, in 1993, of the 3,500 employers who had policies covering one or more construction classifications, 300 or 8.6% qualified for a credit. The fund has no information about the average credit received.

Although Montana is not an NCCI state, it uses NCCI's classification codes.

New Mexico

New Mexico is an NCCI state. A 1991 New Mexico law requires the state insurance superintendent to calculate workers' compensation insurance rates in a way that does not discriminate against higher wage employers. The construction contractor premium adjustment program was adopted to carry out the statutory mandate. It went into effect on July 1, 1992.

The New Mexico program varies from the program in the other NCCI states in several ways. It includes overtime pay in the wages used to calculate the credit. It also requires specific records for the number of hours each employee works before that employee's wages may be included for purposes of determining the credit. And it bases the wage calculation either on the third calendar quarter of the year preceding the policy's effect date or, if the contractor did not operate for the complete quarter, then on the first complete quarter of operations after the policy begins.

The credit ranges from 6% to 20%. When the program began, contractors paying average wages of at least $11 per hour were eligible and contractors paying at least $18 an hour received the full 20% credit. Effective September 1, 1993, the credit schedule was amended to make $11.91 per hour the minimum wage to receive a credit and to give a 20% credit for wages over $19.50 per hour. In addition, the New Mexico program initially did not have any offset in the experience modification for contracting classes to recover premiums loss to the credits. Such an offset was added as of July 1, 1993. According to NCCI, there is also an offset in the standard rates for all contracting classes of 1.007%.

NCCI reports that contractors comprising 1.8% of the total contracting payroll in New Mexico use the adjustment and that their average reduction in total premiums is 12.8% for 1992.

New York

The New York program was instituted on April 1, 1993. The program was not required by the legislature but, according to Dan Cirminiello of the New York Compensation Insurance Rating Board, it was proposed by a rating committee made up of all insurance companies and was approved by the governor's temporary workers' compensation advisory board. The calculation of the credit in New York closely follows the procedure in NCCI states. The classifications covered are basically the same as the NCCI construction classifications.

When the program began, the credit range was 5% to 30% and the minimum wage to receive a credit was $16 per hour. On October 1, 1993, the minimum was lowered to $12 per hour and the credit range was expanded to 1% to 30%. In order to get the maximum 30% credit, a contractor must pay average wages exceeding $26.50 per hour. The premium lost through the credit is currently made up by an adjustment to participating contractors' experience ratings. Cirminiello says the rating board may eventually have to also raise rates across the board for all contracting classes to offset the credits. The rating board has not compiled any information regarding the average credit received or the number of contractors who participate in the program.

Oregon

Oregon is an NCCI state. The Oregon program was instituted by the state Insurance Division as of March 1, 1991. It applies to policies for which more than 50% of the premium is attributable to contracting classifications and whose experience modification is 1.00 or less. In order to offset the effects of the credits, premiums for all contracting classification were increased by 2% (later reduced to 1.018% according to NCCI). Credits range from 6% to 20%. The minimum wage eligible for a credit is $15 per hour. Contractors paying an average wage of at least $22 per hour receive the maximum 20% credit.

According to NCCI, contractors' comprising 7.5% of the total contracting payroll in the state receive the credit and the average credit is 14.32%.

Pennsylvania and Delaware

Our information about the premium adjustment programs in Delaware and Pennsylvania comes from Betty Campbell of the Pennsylvania Compensation Rating Board, which calculates workers' compensation insurance premiums in both Delaware and Pennsylvania.

The Delaware program went into effect on July 1, 1990. It applies to construction contractors who pay average wages of $10 per hour or more for their construction classifications. The credit range is 1% to 25% depending on the wages paid. The average credit received is between 5% and 10%. Of the 3,300 contractors in the state, less than 25% are participating in the credit program. Other details are the same as the Pennsylvania program.

The Pennsylvania credit program began on January 1, 1991. It was instituted because the Pennsylvania legislature required it. The program was seen as an alternative to the idea of basing construction premiums on hours worked rather than total payroll, a proposal that has been pushed by construction unions and union contractors.

The program applies to contractors paying average wages of at least $14.75 per hour. This amount is determined by dividing the state's maximum weekly workers' compensation benefit by 40. Using this method of setting the minimum wage eligible for the credit means that it increases every year on July 1 along with the maximum weekly workers' compensation benefit. The credit range is 1% to 30% and a total of 8,000 contractors participate out of 33,000 in the state. The Pennsylvania rating board does not use the same classification system as NCCI, but Campbell generally characterized the covered classifications as building jobs but not installers. Once a contractor qualifies for the credit, however, it applies to his whole premium, not just the premium attributable to his construction employees.

The premium shortfall resulting from the adjustment is made up in two ways. First, the contractor's experience modification is increased by the amount of the credit so that, for example, a contractor whose experience modification is .75 and who receives a 25% credit will have his experience modification increased to .94. In addition, rates for the entire construction class were also increased by about 1% in Delaware and somewhat less than 1% in Pennsylvania.

Campbell remarked that the required adjustment in the experience rating can be a disincentive for contractors to participate in the adjustment program because, in some cases, it increases the contractor's rating above 1.00. Companies with experience ratings higher than 1.00 are in a "debit situation" and may be considered poor risks by some insurers. This can reduce the number of insurers among which a contractor can choose, which may in turn increase his insurance costs or make it hard for him to get coverage. To deal with this problem, the Pennsylvania rating bureau provides contractors with explanatory letters to show potential insurers that give the unadjusted and adjusted ratings.

COVERED CLASSIFICATIONS

Although only six of the 12 states with credit programs use NCCI as their insurance rating organization, 10 of the 12 use NCCI's classification system. Table 1 below is a list of job classifications covered by premium credit programs in those states. Descriptions are taken from the July 1993 NCCI Scopes of Basic Manual Classifications. In some cases, states have special job classifications not covered by the basic manual. In those cases, we note the class numbers and states using the classification but are unable to describe the job more explicitly. The table does not show covered classifications for Delaware and Pennsylvania, since those states have a different classification system.

Table 1

Classficiations Covered by Credit Programs

In Ten States (NOC=Not Otherwise Classified)

NCCI Code Job Description

0042 Landscape gardening and drivers (Illinois, Maryland, and Minnesota)

0050 Farm machinery operation—by contractors—and drivers (Florida, Illinois, Maryland, Missouri, and Minnesota)

0052 Orchard and grove owners and operators—all operations and drivers (Florida)

1322 Oil or gas well: cleaning or swabbing of old wells having previously produced gas or oil—by contractor—no drilling—and drivers (Florida, Illinois, Maryland, Missouri, New York, and Oregon)

3365 Welding or cutting NOC and drivers

Table 1 (Continued)

3719 Oil still erection or repair (Florida, Illinois, Maryland, Missouri, Oregon)

3724 Machinery or equipment erection or repair NOC and drivers

3726 Boiler installation or repair—steam

5000 No description available (Minnesota and New York)

5020 Ceiling installation—suspended acoustical grid type (all states except New York)

5022 Masonry NOC

5037 Painting: metal structures—over two stories in height—and drivers

5040 Iron or steel: erection—frame structures

5057 Iron or steel: erection NOC

5059 Iron or steel: erection—frame structures not over two stories in height

5067 Bridge building—metal (Missouri)

5069 Iron or steel: erection—construction of dwellings not over two stories in height (all states except Minnesota)

5086 No description available (Minnesota)

5102 Door, door frame or sash erection—metal or metal to be covered

5146 Furniture or fixtures installation—portable—NOC (all states except New York)

5160 Elevator erection or repair

5183 Plumbing NOC and drivers

5184 No description available (New York)

5188 Automatic sprinkler installation and drivers

5190 Electrical wiring—within buildings and drivers

5193 No description available (New York)

Table 1 (Continued)

5213 Concrete construction NOC

5215 Concrete work—incidental to the construction of private residence (all states except New York)

5221 Concrete or cement work—floors, driveways, yards or sidewalks—and drivers

5222 Concrete construction in connection with bridges or culverts

5223 Swimming pool construction—not iron or steel—all operators and drivers (all states except Minnesota)

5348 Tile, stone, mosaic or terrazzo work—inside

5402 Hothouse erection—all operations (all states except Minnesota and Montana)

5403 Carpentry NOC

5428 No description available (New York)

5429 No description available (New York)

5437 Carpentry—installation of cabinet work or interior trim (all states except New York)

5443 Lathing and drivers (all states except Minnesota)

5445 Wallboard installation within buildings and drivers

5462 Glazier—away from shop and drivers

5472 Asbestos contractor—pipe and boiler work exclusively and drivers (Maryland and Montana)

5473 Asbestos contractors—NOC and drivers (Maryland and Montana)

5474 Painting or paperhanging NOC and shop operators, drivers

5479 Insulation work NOC and drivers

5480 Plastering NOC and drivers

Table 1 (Continued)

5491 Paperhanging and drivers (all states except Massachusetts)

5505 Paving or road surfacing NOC and yards, drivers (Missouri)

5506 Street or road construction: paving or repaving and drivers

5507 Street work or road construction: subsurface work and drivers (all states except Missouri)

5508 Street or road construction: rock excavation and drivers (all states except Missouri)

5509 Street or road maintenance—municipal, county or state department—and drivers (Florida and Massachusetts)

5511 Logging road construction and maintenance; Montana—forest access area—all operations and drivers (Oregon)

5515 Street or road construction and drivers (Missouri)

5536 No description available (Minnesota)

5538 Sheet metal work—shop and outside—NOC and drivers

5545 No description available (Massachusetts and New York)

5547 No description available (Massachusetts and New York)

5550 No description available (New York)

5551 Roofing—all kinds and yard employees, drivers (all states except Massachusetts)

5606 Contractor—executive supervisor or construction superintendent (all states except Montana)

5610 Cleaner—debris removal (all states except Minnesota)

5645 Carpentry—detached one or two family dwellings

5649 No description available (Minnesota)

5651 Carpentry—dwellings—three stories or less

Table 1 (Continued)

5701 No description available (Massachusetts)

5703 Building raising or moving and drivers

5705 Salvage operation—no wrecking or any structural operations (all states except Florida, Minnesota and Montana)

6003 Pile driving and drivers

6005 Jetty or breakwater construction—all operations to completion and drivers (all states except Minnesota)

6017 Dam or lock construction: concrete work—all operations (all states except Massachusetts and Missouri)

6018 Dam or lock construction: earth moving or placing—all operations and drivers (Florida, Illinois, Maryland, Montana, New Mexico, Oregon)

6045 Levee construction—all operations to completion and drivers (all states except Massachusetts and Minnesota)

6204 Drilling NOC and drivers (all states except New Mexico and New York)

6206 Oil or gas well: cementing and drivers (Florida, Illinois, Maryland, Missouri, Oregon)

6213 Oil or gas well: specialty tool operation NOC—by contractor—all employees and drivers (Florida, Illinois, Maryland, Minnesota, Missouri, Oregon)

6214 Oil or gas well: perforating of casing—all employees and drivers (Florida, Illinois, Maryland, Missouri, Oregon)

6216 Oil or gas lease work NOC—by contractor and drivers (Florida, Illinois, Maryland, Minnesota, Missouri, Oregon)

6217 Excavation and drivers

6229 Irrigation or drainage system construction and drivers

6233 Oil or gas pipeline construction and drivers (all states except New Mexico and New York)

Table 1 (Continued)

6235 Oil or gas well: drilling or redrilling and drivers (Florida, Illinois, Maryland, Minnesota, Missouri, Oregon)

6236 Oil or gas well: installation or recovery of casing and drivers (Florida, Illinois, Maryland, Minnesota, Missouri, Oregon)

6237 Oil or gas well: instrument logging or survey work and drivers (Florida, Illinois, Maryland, Minnesota, Missouri, Oregon)

6248 No description available (Minnesota)

6251 Tunneling—not pneumatic—all operations

6252 Shaft sinking—all operations

6257 Caisson work—pneumatic—all operations to completion (New York)

6260 Tunneling—pneumatic—all operations (New York, Montana, and Oregon)

6306 Sewer construction—all operations and drivers

6319 Gas main or connection construction and drivers

6325 Conduit construction—for cables or wires—and drivers

6365 Irrigation pipe installation—agricultural—above ground and drivers (Montana)

6400 Fence erection—metal

7380 Drivers, chauffeurs and their helpers, NOC—commercial (Missouri only and only when more than 50% of total premiums is produced by one or more covered contracting classifications)

7529 No description available (Minnesota)

7536 No description available (New York)

7538 Electric light or power line construction and drivers

7601 Telephone, telegraph or fire alarm line construction and drivers

7605 Burglar alarm installation or repair and drivers (Montana)

Table 1 (Continued)

7855 Railroad construction: laying or relaying of tracks or maintenance of way by contractor—no work on elevated railroads—and drivers

8227 Construction or erection permanent yard (all states except Montana)

9014 Buildings—operation by contractors (Massachusetts)

9517 No description available (New York)

9518 No description available (New York)

9526 No description available (New York)

9527 No description available (New York)

9528 No description available (New York)

9521 House furnishings installation NOC and upholstering (Minnesota and Montana)

9529 Scaffolds or sidewalk bridges—installation, repair, or removal—and drivers (Massachusetts and Oregon)

9534 Mobile crane and hoisting service contractors—NOC—all operations—including yard employees (all states except Montana and New York)

9539 No description available (New York and Oregon)

9545 Bill posting and drivers (all states except Massachusetts, Montana, and New Mexico)

9549 Advertising company and drivers (all states except Massachusetts, Montana, and New Mexico)

9552 Sign mfg.—erection, repair or maintenance and shop, drivers (Montana)

9553 Sign painting or lettering—outside of buildings or structures—and drivers (Illinois and New York)

EFFECT OF CREDIT PROGRAM IN CONNECTICUT

We asked NCCI what, in their opinion, the effect of a premium credit program would be in Connecticut. NCCI's response (letter of September 24, 1994, p. 3, Appendix I) was not very specific since they had no idea how such a program would be structured. A key factor in judging the effect is the number of contractors who would be eligible for a credit. This number is highly dependent on the minimum qualifying wage level set for the credit. As we have already described, different states use different criteria for setting the minimum average wage at which contractors receive credits. If these same methods were used in Connecticut, the minimum wage levels that would result are as follows:

1. A qualifying wage based on the maximum weekly workers' compensation benefit as in Delaware and Pennsylvania—$16.50 per hour.

2. A qualifying wage equal to 150% of the state average weekly wage divided by 40 hours as in Montana—$24.75 per hour.

3. A qualifying wage equal to the average hourly construction wage in Connecticut—$19.15 per hour.

4. A qualifying wage set at 10% below the average state construction wage as in Minnesota— $17.24 per hour.

Obviously, the higher the qualifying wage, the fewer the qualifying contractors and the less the overall effect on the state's construction industry.

Although NCCI said that credit programs result in increases in overall construction class premiums, with premium revenues redistributed to lower wage contractors, we note that overall premium increases are not a factor in all states because premiums can be made up by adjusting experience ratings for qualifying contractors. On the other hand, where construction class premiums were increased, reported increases are in the range of 1%. Taken by itself, such an increase would not appear to have a major effect on contractors who do not participate in the credit programs. It is also possible that a reduction in workers' compensation premiums for contractors covered by prevailing wage laws might be reflected in lower bids for public works jobs and thus lower costs for local and state governments and taxpayers.

JSL:pp

APPENDIX 1: INFORMATION REQUESTS AND REPLIES

APPENDIX 2: RATING ORGANIZATION PROGRAM

CIRCULARS AND APPLICATIONS

APPENDIX 3: STATE STATUTES