Understanding WCB Employer Surplus Rebates
On June 12th, 2015, the Workers’ Compensation Board (WCB) of Saskatchewan announced that they would be refunding $114 million to employers, this follows a May 11, 2015 press release by the Alberta WCB stating that they would be refunding over $500 million due to a declared surplus in their funding. Essentially, they are issuing a rebate on premiums previously paid, which makes one wonder – why? Have they been caught with their hands in the proverbial cookie jar, lining their pockets at the expense of hard working businesses? Are they so poorly mismanaged that they were unaware how much money they had? If they are handing money back, why not just lower premiums? Are injured workers suffering because money that could provide benefits is being returned to their employer? There is no short answer and in order to understand the rationale, you first need to understand the WCB, why it exists and how it is funded.
Let’s examine the issue of WCB Employer surplus rebates, with a quick review of worker’s compensation and premiums:
What is Workers’ Compensation?
Simply put the concept of Workers’ Compensation was established to provide no fault insurance for workers who were injured on the job, to offer a wide range of services, including wage loss benefits, health care and vocational rehabilitation, to assist in their recovery and reentry into the workforce. In exchange, injured workers would give up their right to sue their employer for benefits, services and/or negligence. The system is funded by premiums paid by participating employers to the WCB, the WCB invests the premiums and resulting pool of money is used to cover the costs of rehabilitating injured workers.
How are Premiums Determined?
The amount of premiums an employer pays is based on a complex calculation that takes into account things like the industry they are classified in, the average number of claims within their industry, the number of claims they have experienced, how their claim record compares with other employers in their classification and the number of workers they employ. It also looks at the economy, what is happening in the stock market, trends in the number of claims per year and the operating costs of the organization itself. The result of that calculation is a realized as a percentage that is then applied to the payroll dollars for that particular employer.
Each year employers are required to report their estimated annual assessable payroll earnings to the WCB to be used to determine their premium for that year. Once collected, the premiums are then invested and used to cover costs for all WCB claims for that year. Essentially the WCB is a fully funded statutory corporation created by the government under the Workers’ Compensation Act to administer a system of workplace insurance for workers and employers. At any given point in time, a snapshot of their financial picture should be sufficient to cover the current and future costs of all existing claims.
Where does a Surplus come from?
The WCB’s funded position is looked at on a yearly basis. If a surplus, or levy, is declared it relates to a specific year and is reflective how the premiums were invested and how well those investments fared. The rate setting for calculation for premiums for a year is based on the performance of each employer and the estimated costs to cover all claims for that year, ensuring that today’s employers are paying the costs of today’s claims. As such, funding surpluses are the result of favourable investment returns and not because employers were overcharged. If a surplus is declared for a specific year, it is then refunded to the employers that contributed to the premiums for that year. Since the costs to cover the claims for that year have already been realized through premium collection and workers are already getting the full benefits they are entitled to, the money is indeed surplus. Although the WCB does retain a buffer in their funding position to cover unforeseen events, once the fund becomes greater than the pre-determined buffer, a surplus is realized and the excess funding is returned directly to the employers.
Still confused?
Additional information about WCB Alberta premium rate setting and funding policies can be found here and the WCB Saskatchewan here. If you are interested in finding out if your organization qualifies for a rebate or how your rebate is calculated you can connect with us directly during business hours by using our chat feature or calling 1-844-377-9545. Or you can connect with us on our Facebook page, through our Twitter account, on our LinkedIn profile or email us at [email protected] or at [email protected]
