Logging Companies and Workers Comp

Logging Companies and Workers Comp

Credit: The Red Tape Movement Blog.

Political pundits all suggest that a re-examination of our country’s broken health care system will be the first order of business that Congress takes up this session. And it will mean a slew of news stories about different aspects of the problem that might be analogized to the old Indian parable of the blind man and the elephant.

What does this have to do with Northern Woodlands? Well, across the Northeast but especially in Vermont, loggers are dealing with a similarly complex and many would argue broken system relating to workers’ compensation insurance premiums. The problem is just as wonky and hard to wrap your mind around as the health insurance debacle, but hopefully the more localized powers that be are nimble enough that there’s a real chance this one could get fixed. Or, I guess more accurately, fixed enough: loggers of a certain age probably remembering fighting these same battles in the past when a convergence of events sent rates through the roof.

Here’s a crude drawing of what the elephant looks like. All states require companies who have employees to purchase workers’ compensation policies. The rates of those policies vary by profession (there’s a formula that is recalculated every year based on the claims from the previous five years) and, like all insurance markets, the pools benefit from economies of scale. Unfortunately for logging companies, the job is dangerous and there’s just not many loggers anymore – insured ones, anyway – so the rates are stupidly high. How high? Sam Lincoln, a logger from Vermont who’s spearheading efforts for reform said that in 2016, companies that employed non-mechanized loggers (chainsaw and cable skidder) in Maine paid $22 per $100 in payroll; in New Hampshire it was $29.29/$100; in New York it was $18/$100; in Vermont it was $54.06/$100. The numbers are about 40 percent lower for a mechanized logger in all states but New York. He said that he generated the numbers using data on state labor department websites and communication with state insurance carriers and logging association representatives.

Practically speaking, this means that if I wanted to start a logging company and hire a worker to run a cable skidder for me, if I paid her $40,000 a year, I’d be paying an additional $20,000 in workers’ comp insurance. And in Vermont, that money is due up front – it’s not a pay-as-you-go system like a payroll tax. Lincoln runs a mechanized operation so his rates are “only” 20 percent, but he still pays an extra $8 per hour, per employee, to cover workers’ comp costs and payroll taxes.

All of this could be fine if the wood industry was high-profit and logging was lucrative, but that’s rarely the case. And so couple the workers’ comp burden with bad-to-non-existent low-grade wood markets and marginal sawlog prices, big loan payments on expensive equipment, the high costs of living, and you can understand why the logging workforce continues to mechanize and continues to shrink.

So what can be done? There are already caps on rates that are intended to protect companies from large and sudden changes in premiums – without them rates would be even higher – but with a 60 percent rise in premiums over the last few years, this idea of “large and sudden” is clearly relative. (And ironically, these caps are causing more pain than help to some Vermont log hauling companies due to a math quirk that’s too much of a diversion to get into here.) One of the reasons that premiums are lower in Maine, New Hampshire, and New York is because those states have initiated self-insured trusts. According to Lincoln, Vermont does not have enough loggers and log haulers purchasing workers’ compensation to realistically start a self-insured trust. The industry would need about $1.5 million in annual premium to get this off the ground. As of right now, it has only 105 policyowners in the state; since some companies own multiple policies, the number of individual businesses contributing is likely much lower than that. Other action points include better logger training efforts to make the industry safer, promoting the use of professional contractors in the industry, attracting a voluntary market carrier to Vermont to insure certified loggers and truckers, and exploring the idea of a multi-state pool.

The deeper Lincoln gets into all this, the deeper the hole seems to get. “I thought I was just going to go in and explain things to someone and we’d fix the problem,” said Lincoln. “Most days now I feel like a dog chasing my tail.” Even after talking to Lincoln and several other business owners about this, I’m not totally sure what part the state controls and what part the insurance companies control, which doesn’t seem to be a unique take-home experience. “I get a lot of: ‘that makes perfect sense, but we don’t control that,’” said Lincoln.

Complicating things even more in Vermont is the recent high-profile campaign to crack down on businesses that treat employees like independent contractors. (Employers must provide workers comp to employees, but not to independent contractors.) If a logging company hires an independent trucker to haul wood from a jobsite, or an occasional freelance feller to work on a big job, there’s a chance they’re required to consider these contractors employees and pay workers comp following a legal precedent that was set in 2008. “I have to fight with the insurance company every year about this,” said Lincoln, pointing out the stark lines between his employees who show up for work every morning at 7 and the welder who he calls out to his farm to fix a badly broken piece of equipment twice a year. An effort to clarify the rules regarding who’s a worker and who’s an independent contractor was introduced last year in the legislature, passed in a bi-partisan manner 11-0 in committee, but was then killed. People with inside information on this tell me the bill was a victim of election year politics, so there’s a chance the reflexive opposition from labor interests will be less intense this session when the bill is reintroduced. Lincoln made it clear that he has no problem with the idea of paying workers’ comp insurance for his employees, and in fact he wants a strong labor department that roots out legitimate misclassification and abuse because people who are cheating the system are making his premiums higher. He says he just needs a rational policy that sees the difference between a worker and a freelancer; a policy that allows for the Yankee ingenuity that’s at the heart of the rural economy.

 
Discussion
  1. Gregory Cox → in MA
    Jan 06, 2017

    Workmens comp rates are one of the primary reason that most logging operations in Massachusetts are individual or family businesses with no employees who aren’t relatives because they aren’t subject to workmens comp.  (need to carry disability insurance instead).

    Massachusetts has an even smaller logger workforce than Vermont and there is often no distinction between mechanized or non mechanized logging due to the small size of the eligible pool.  This raises rates across the board. Even worse, arborists and tree crew workers are often lumped in with loggers (or vice versa) in the rate determination and while logging has a limited number of injuries, tree work, which deals very often with weakened and danger trees, has a lot, which makes the rates even less affordable.

    The arborists can generally pass on the costs to their customers but because loggers sell products whose price is controlled by markets they don’t control, the logger can’t deal with the excess cost by charging more for his product.

  2. Cliff Clune → in Central NYS
    Jan 11, 2017

    Your rates for NYS are what the self insured group WJ COX would be, but with the State Ins Fund , I do believe they beat the Vermont rates.

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