A complicated calculation for determining workers compensation premiums has evolved into a do-or-die benchmark on whether contractors are qualified to bid on many jobs, and some say that’s not fair, especially for smaller contractors.
It’s called the experience modification rate (EMR), and it’s based on previous workers comp claims versus payroll and other factors. The rate can lead to a reduction or increase in a company’s workers comp premiums. But over the years, the rate has come to mean much more in the construction industry, where the number has often become the final word on a construction company’s safety practices.
“It’s not the Holy Grail of safety indicators as some would think it is,” says Frank Wampol, vice president of corporate safety and health for B.L. Harbert International, a general contractor based in Birmingham, Alabama. “It’s one of many things that one should be looking at to determine the effectiveness of a contractor’s program. The way it has over time become the do-or die indicator, that was not the intent.”
Setting bid prequalification on EMR can also be unfair to smaller contractors because part of its calculation is based on the size of the company’s payroll.
“When that small contractor who has a small payroll has a minimal loss, then there are fewer dollars to absorb that loss, thus it has a much greater impact on their EMR,” Wampol says. “The more payroll you have, the more claims you can absorb.”
