WSIB’s new classification structure
The WSIB’s new premium rate-setting model is based on the North American Industry Classification System (NAICS). The WSIB’s classification system has 34 WSIB classes and subclasses (referred to here as “classes”) that are listed in Schedule 1, Part I of O. Reg. 175/98. Within these classes, the business activities of each Schedule 1 employer are further classified in one or more 6-digit classification codes (NAICS codes), as described in the WSIB’s Employer Classification Manual (ECM) that is on the WSIB’s website.
What to do if you think you may have been misclassified
Employers that were registered with the WSIB prior to January 1, 2020 received a letter from the WSIB in the Fall of 2019 letting them know which class(es) the WSIB transferred them into from the former Standard Industrial Classification (SIC) system. For employers that had two or more rate groups in the SIC system, this letter also tells you what your predominant class is, and whether you were transferred to more than one class. New employers who register with the WSIB after January 1, 2020 will receive a similar letter. You should look at the relevant NAICS descriptions in the WSIB’s ECM to ensure your business has been classified correctly. If you believe you have been misclassified, please contact the OEA for assistance as soon as possible.
The WSIB maintains an insurance fund that is made up of annual premiums paid by Schedule 1, Part I employers. An employer’s premium payments are based on the WSIB’s classification of the employer’s business activity (which helps to determine the premium rate) and the employer’s total insurable earnings. The annual premium paid by an employer is equal to its annual insurable earnings (payroll costs), multiplied by the premium rate, and divided by 100.
Each fall, the WSIB sets the premium rate for each Schedule 1 class and announces the maximum insurable amount of workers’ earnings, for the following calendar year. Employers pay premiums only up to the maximum insurable amount which is set annually.
Classification and premiums for non-exempt partners and executive officers in construction
Executive officers in a corporation in construction must pay premiums on their earnings up to the annual maximum amount. Insurable earnings of executive officers include employment income reported to the CRA on Forms T4, T4A, T5, and director fees.
Non-exempt partners and executive officers in construction who do not perform any construction work or on-site supervision can apply for the “Construction Executive Classification,” formerly referred to as Rate Group 755, and may be eligible to receive a separate premium rate. This lower premium rate reflects the low risk of their work as compared to the rest of the construction industry.
Under the rate framework, the same premium rate is assigned to all non-exempt partners and executive officers in the construction industry in any given year, even though everyone will be classified under the construction subclass (one of five) that applies to their construction business.
Premiums for IOs
IOs in the construction industry who are engaged in both commercial work and home renovations must report all construction earnings to the WSIB as insurable earnings.
For IOs, insurable earnings will be calculated in one of three ways:
- If the business records, invoices, or written contracts accurately identify the labour portion of the contract, the WSIB considers the labour portion to be the IO’s gross insurable earnings.
- If the business records do not accurately identify the labour portion of the contract and there is no evidence that the contractor provided major materials and/or heavy construction equipment, the WSIB considers 100% of the value of the contract to be the IO’s gross insurable earnings for reporting purposes.
- If the business records do not accurately identify the labour portion of the contract and it can be shown that the IO supplied major materials and/or heavy construction equipment, the WSIB will allow the principal to identify the labour portion of the contract as follows.
- a) If the IO provides labour and major materials, the IO reports 60% of the contract value as gross insurable earnings.
- b) If the IO provides labour and heavy construction equipment, either with or without major materials, the IO reports 33⅓% of the contract value as gross insurable earnings.
Most employers will be assigned one premium rate
An employer that is classified in one or more NAICS codes that are in the same class has one premium rate.
Most employers that are classified in two or more NAICS codes that belong to two or more different classes will be assigned one premium rate that is based on their predominant class. Your predominant class is the class that represents the largest percentage of your annual insurable earnings.
Some employers may be assigned multiple premium rates
An employer that has insurable earnings in two or more classes may be classified in two or more classes if the business activity,
a) is significant, and
b) is not integrated with the employer’s other operations.
a) A significant business activity
A business activity is deemed “significant” if it generates annual insurable earnings of at least five times the maximum insurable earnings ceiling for the premium year, or if it generates at least 20% of the employer’s total annual insurable earnings.
b) Integrated operations
An employer is not eligible for a separate premium rate if the business activity is deemed “integrated” with the employer’s other operations because,
- a substantial share of staff, supplies, equipment, or processes of one business activity are combined with those of another business activity, and/or
- the product or service of the business activity is primarily offered to external, unaffiliated clients, together with the product or service of the employer’s other operations.
Employers that qualify for two or more premium rates in any given year must be able to segregate their earnings records according to each NAICS code for that year.
Report all changes to business activities promptly
If you change, add or discontinue a business activity you must contact the WSIB within 10 calendar days from the date the change occurred to ensure that you continue to be classified correctly. Be aware that in the WSIB’s new premium rate-setting model, a change to your classification could affect your predominant class, or your assignment to single or multiple premium rates. Failing to communicate a material change within the time limit can result in penalties.
How premium rates are set
The WSIB uses a two-step model to set the premium rates for Schedule 1 employers.
Step 1 – WSIB sets the class premium rate (the starting point rate)
The WSIB sets a class premium rate for each of the 34 classes each fall, for the following calendar year. This rate is based on each class’ share of existing and future costs to maintain the insurance fund that provides benefits to injured workers.
Step 2 – WSIB sets the employer risk-adjusted premium rate
Each employer receives an individual risk-based premium rate that takes into consideration how their claims experience and insurable earnings compares to the claims experience and insurable earnings of all the employers in their class as a whole, over a rolling six-year review period (i.e., using figures from 2013 to 2018 for the 2020 premium rate). An existing employer’s starting rate for 2020 was based on different criteria.
As the new premium rate-setting model is a prospective experience rating model that does not issue rebates or surcharges, the former experience rating programs (MAP, NEER, CAD-7) are winding down.
A work-related traumatic fatality will result in a fixed claim cost being added to the employer’s claims experience in the year the fatality occurred. The fixed claim cost is equivalent to the average cost of traumatic fatalities in Schedule 1, based on a six-year rolling average (changing annually). It replaces the actual costs of the claim and is subject to the employer’s claim cost limit.
So, what is your premium rate?
The WSIB will send you a letter with your actual premium rate, and your projected premium rate. Your actual premium rate is the premium rate you will be paying in the following calendar year. It’s based on claim experience and other factors such as actuarial predictability. Your projected premium rate lets you know where your future premium rates are currently headed (up, down, or no change) if all of the factors included in the premium rate setting calculation remain stable over time. It represents how much you need to pay to fund your own share of WSIB costs, as well as the collective costs of your class.
Employers with less than 11 months’ Schedule 1 coverage in the review period are considered “new employers” and are assigned the class premium rate as they do not have a claim history.
Risk bands represent different levels of risk within each class
Each class risk band represents a 5% increment in the premium rate. Once the rate framework has been fully implemented, employers will move a maximum of three risk bands each year, towards the risk band that matches their employer projected premium rate. This limit will protect an employer from unexpected catastrophic claim costs in any particular year.
Premium adjustments may be applied retroactively
The WSIB may retroactively apply premium and premium rate adjustments as a result of an audit, for example, to the current (calendar) year, plus three prior years. In limited cases, the WSIB may go back to any prior year.
Associated employers share insurable earnings and claims experience
If the WSIB determines that two or more employers are associated, it will combine the insurable earnings and claims experience of the associated employers for the purposes of classification and premium rate setting. Two or more employers will be deemed associated if they meet the two-part test of affiliation and cooperation.
1. Affiliation test
The first part of the test says two or more employers are deemed affiliated if,
- they are related family members, or
- there is joint corporate control / kinship, or
- they are two or more partnerships, with people who are general or limited partners of the partnerships, and those people are entitled to at least an equal share of the profits.
It is noteworthy that the definition of “family members” in the new premium rate-setting model has significantly expanded to include not only spouses, parents, children and siblings, but also grandparents, grandchildren, in-laws (father, mother, son, daughter), a spouse’s sibling, or a step/half relationship to any of those individuals.
It is also noteworthy that two employers who are essentially unknown to one another might possibly be deemed affiliated. For example, if Employer A is affiliated with both Employer B and Employer C, it may be presumed that Employer B and Employer C are affiliated with each other simply because they each have a separate but direct affiliation with Employer A.
However, just because two employers are affiliated does not necessarily mean they are associated. In order to be associated, they must also pass the cooperation test.
2. Cooperation test
Two or more employers that are affiliated are deemed to have a cooperative business relationship if one or more of the following business arrangements is true:
- one operation is primarily ancillary (as listed in WSIB policy) to the other operation if they are both carried out by a single employer, and/or
- the business activities primarily form an integrated operation (as defined by WSIB policy), and/or
- one employer is a temporary employment agency that supplies workers to an affiliated employer.
The WSIB will determine, on a case-by-case basis, whether “limited and appropriate” claim file information will be disclosed to associated employers (or transfer of experience employers), where applicable.
Claims experience may be transferred if you close and re-open your business
The WSIB will transfer the insurable earnings and claims experience of an employer that closes a business and then re-opens it within 12 months if the employer substantially retains the same of any two of the following: employees, clients, suppliers, business processes and equipment, health, safety and disability management programs, and/or its management team. The transfer will happen even if the employer registers the business under a new name, or provides new articles of incorporation, or gets a new WSIB account number.
Additional costs and penalties you could incur
The WSIB may levy penalties for various offences, including,
- failing to comply with the requirement to register for mandatory coverage in construction
- failing to register your business within 10 days of hiring your first worker
- failing to get a clearance for each contractor, subcontractor, and IO, and keeping all clearances for three years
- failing to report an accident
- discouraging or preventing a worker from filing a claim for WSIB benefits (“claim suppression”)
- influencing or inducing a worker to withdraw or abandon a claim for WSIB benefits (“claim suppression”)
- not reporting, or incorrectly reporting, your premium information, including premium adjustments
- underestimating your earnings
- knowingly making a false or misleading statement or representation to the WSIB
- wilfully failing to inform the WSIB of a material change in circumstances (i.e., discontinuing or changing a business activity, a change in insurable earnings, etc.), and
- contravening rules regarding the disclosure of confidential information.
If found guilty under the WSIA, individuals may be fined up to $25,000 and/or imprisoned for up to six months for each offence. Corporations are liable to a fine of up to $500,000 for each offence.
Employers who are determined by the WSIB to have engaged in claim suppression may be charged an administrative penalty of $5,000 for each of the first three occurrences, $7,500 for each of the next three occurrences, and $10,000 for each occurrence after that.
Employers who are found in breach of their work reintegration (WR) and/or re-employment obligations are also subject to financial penalties that are outlined in the WR and re-employment sections of this website. These penalties can equal an amount up to the worker’s actual annual earnings.
The WSIB also charges interest for non-compliance regarding any/all WSIA obligations.
Get valid clearances
Construction contractors and IOs are required to have WSIB coverage, and a valid clearance confirms that a contractor or IO has registered with the WSIB and reports and pays their WSIB premiums on time. The WSIB issues clearances at no cost. As of September 2019, each contractor or IO whose WSIB account remains in good standing will have one generic clearance certificate that will be valid for all of its contracts.
A principal/employer who hires a contractor or IO to do construction work must get a clearance that proves the contractor’s or IO’s WSIB account is in good standing before allowing the contractor or IO to do any work. If a clearance expires or is revoked the work must stop, and you must receive a valid clearance before allowing the non-compliant contractor or IO to resume work. Failure to do so is an offence under the WSIA, putting you at risk of incurring the penalties stated above. Without a clearance, the principal/employer will also be held financially responsible for any unpaid premiums that are charged to the contractor’s or IO’s WSIB account, up to the value of the labour portion of the contract. A clearance protects the principal/employer from that liability, during the time the clearance is valid.
You may deduct from money payable to the contractor or IO the amount for which he/she is liable.
An employer must keep all clearances for at least three years and will be asked to provide them to the WSIB if an audit takes place.
Using the WSIB’s eClearance program
The WSIB’s eClearance program is a free online service available through the WSIB’s website. It allows contractors to obtain a generic clearance that can be used for all of their contracts. It allows employers to easily check the validity of a potential contractor’s clearance and manage their list of contractors.
A clearance is valid for up to 90 days and will be automatically renewed as long as the contractor’s account remains in good standing.
If you have questions about the eClearance system, or would prefer to request a clearance over the phone, call the WSIB at 1-800-387-0750.