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There was an error on the most recent payroll report sent out from the BWC. The minimum and maximum weekly payroll amounts the officers in a corporation and partners must report when paying premiums was incorrect.

The correct minimum payroll that must be reported by an officer or partner is $384 per week or $9,984 per six month period.

The maximum payroll to be reported by an officer or partner is $1,151 per week or $29,926 per six months.

You must report actual payroll for each officer, if it is between the maximum and minimum.

If the total premium for the company is less than $50, you must pay $50 to keep your policy active.

All premiums must be received by the BWC by February 26, 2010. The normal due date is February 28, but in 2010 that is a Sunday. Unlike the IRS, the BWC does not recognize the “mailbox rule”. The BWC recognizes the date it receives the payment, not the postmark on the envelope.

If you are concerned about meeting that date, pay your premiums on line. Go to ohiowbwc.com and click on “pay premium” under the orange Ohio Employers heading.

This week I was going to write about good things at the Ohio BWC, but then I heard about its current practice of billing small employers for an increase in their security deposits.

Imagine: you are a small home remodeling company, going through hard times in the current economy. Two days before Christmas, you get a bill from the BWC for $500 to increase your security deposit. You have been in business for seven years, and never had a claim filed against you. Now you have to borrow money against your machinery and tools to pay this unexpected demand.

Why?

According to the Insurance Fund Manual §4123-17-16, a security deposit is paid to the BWC when you initiate coverage with the Ohio BWC. You provide to the BWC an estimate of wages to be paid in the first eight months you are in business, and the security deposit is 30% of the base-rated premium. The deposit must be at least $10 and no more than $1,000. Its purpose is to provide coverage for the first eight months you are in business. You get the security deposit back when you cancel your coverage, minus any monies you owe the BWC.

§4123-17-16(C) states that the BWC shall review the security deposit of every employer who submits one, but it doesn’t specify when. If the security deposit purpose is to provide coverage for the first eight months a company is in business, why demand more years later?

Expected Loss Rates (ELR) are the BWC’s dirty little secret. Why is it secret? The BWC doesn’t send out letters announcing when it decreases the ELR because lowering the ELR increases your premium rates.

Every employer in Ohio has at least one manual classification, which indicates the type of work performed. Attached to that manual classification are two numbers, the base rate and the expected loss rate ELR).

Here’s how the ELR is supposed to be calculated: Take the total claims costs for that manual classification during the oldest four of the past five years. Divide the total claims costs by the number of claims in that manual classification over the same four years.

In its simplest form, the BWC compares the losses it expects to see (payroll times the ELR for each manual classification) to the claims costs. The ratio is called the Experience Modifier (EM). When the BWC lowers the ELR, the expected losses are lower so there is a bigger difference between it and the dollars paid in the claim.

You will see the actual formula on your yearly experience exhibit starting with the Total Modified Losses (TML) to the Total Limited Losses (TLL).

Years ago, when the BWC was transitioning from the tabular reserve system to MIRA I, it fudged the ELR to make sure that the MIRA reserves looked better than the tabular reserves. You may remember seeing your EM and premium rates calculated under both systems, and the MIRA I formula looked better than the previous system.

Now we know that MIRA I was less than wonderful at predicting appropriate reserves, but that’s a post for another day!

Yes, lower base rates can mean lower premiums. Read on, if you want to know why.

The BWC recently sent a letter to many employers announcing that it had lowered the base rate for an employer’s primary manual classification by x percent. This is part of the BWC’s efforts to be more transparent.

Every employer in Ohio has at least one manual classification, which indicates the type of work performed. Attached to that manual classification are two numbers, the base rate (BR) and the expected loss rate. The BR is the rate (increased by several other rates, such as the DWRF, DWRF II and administration fees) that the employer multiplies by its payroll to calculate its premiums. So a lower base rate should result in a lower premium rate.

Traditionally, the BWC will raise or lower the base rate a maximum of 30% from one year to the next. It’s possible to see a base rate increase by 30% one year and drop by 30% the next. Which means that the base rate ends up higher than it was originally.

The BWC has often sent out a press release announcing the premium rates have increased an average of some percent over the previous year. This year, the BWC is advising each employer when its primary base rate has decreased.

Even more important, though, are the expected loss rates (ELR) attached to each manual classification. This is the dirty little secret that the BWC does not publicize.