WORKERS’ COMPENSATION INSURANCE AND RESERVES

We provide workers’ compensation insurance for our temporary and permanent employees. The majority of our current workers’ compensation insurance policies cover claims for a particular event above a $2.0 million deductible limit, on a “per occurrence” basis. This results in our being substantially self-insured.

For workers’ compensation claims originating in Washington, North Dakota, Ohio, Wyoming, Canada, and Puerto Rico (our “monopolistic jurisdictions”), we pay workers’ compensation insurance premiums and obtain full coverage under government-administered programs (with the exception of our PeopleReady service lines in the state of Ohio where we have a self-insured policy). Accordingly, because we are not the primary obligor, our financial statements do not reflect the liability for workers’ compensation claims in these monopolistic jurisdictions. Our workers’ compensation reserve is established using estimates of the future cost of claims and related expenses that have been reported but not settled, as well as those that have been incurred but not reported.

Our workers’ compensation reserve for claims below the deductible limit is discounted to its estimated net present value using discount rates based on average returns of “risk-free” U.S. Treasury instruments available during the year in which the liability was incurred. The weighted average discount rate was 1.6% and 1.8% at January 1, 2017 and December 25, 2015, respectively. Payments made against self-insured claims are made over a weighted average period of approximately 4.5 years at January 1, 2017.

The table below presents a reconciliation of the undiscounted workers’ compensation reserve to the discounted workers' compensation reserve for the periods presented as follows (in thousands):



	January 1, 2017		December 25, 2015
Undiscounted workers’ compensation reserve	$	292,169	$	284,306
Less discount on workers' compensation reserve	14,818		18,026
Workers' compensation reserve, net of discount	277,351		266,280
Less current portion	79,126		69,308
Long-term portion	$	198,225	$	196,972

Payments made against self-insured claims were $73.6 million, $70.7 million, and $60.6 million for the years ended January 1, 2017, December 25, 2015, and December 26, 2014, respectively.

Our workers’ compensation reserve includes estimated expenses related to claims above our self-insured limits (“excess claims”), and we record a corresponding receivable for the insurance coverage on excess claims based on the contractual policy agreements we have with insurance carriers. We discount this reserve and corresponding receivable to its estimated net present value using the discount rates based on average returns of “risk-free” U.S. Treasury instruments available during the year in which the liability was incurred. The claim payments are made and the corresponding reimbursements from our insurance carriers are received over an estimated weighted average period of approximately 15 years. The discounted workers’ compensation reserve for excess claims was $52.9 million and $49.0 million as of January 1, 2017 and December 25, 2015, respectively. The discounted receivables from insurance companies, net of valuation allowance, were $48.9 million and $45.2 million as of January 1, 2017 and December 25, 2015, respectively, and are included in Other assets, net on the accompanying Consolidated Balance Sheets.

Management evaluates the adequacy of the workers’ compensation reserves in conjunction with an independent quarterly actuarial assessment. Factors considered in establishing and adjusting these reserves include, among other things:


•	changes in medical and time loss (“indemnity”) costs;


•	changes in mix between medical only and indemnity claims;


•	regulatory and legislative developments impacting benefits and settlement requirements;


•	type and location of work performed;


•	impact of safety initiatives; and


•	positive or adverse development of claims.

The table below presents the estimated future payout of our discounted workers' compensation claims reserve for the next five years and thereafter as of January 1, 2017 (in thousands):



2017	$	79,126
2018	43,882
2019	25,220
2020	15,464
2021	9,979
Thereafter	50,750
Sub-total	224,421
Excess claims (1)	52,930
Total	$	277,351


(1)	Estimated expenses related to claims above our self-insured limits for which we have a corresponding receivable for the insurance coverage based on contractual policy agreements.

Workers’ compensation expense consists primarily of changes in self-insurance reserves net of changes in discount, monopolistic jurisdictions’ premiums, insurance premiums, and other miscellaneous expenses. Workers’ compensation expense of $94.0 million, $98.2 million, and $77.5 million was recorded in Cost of services for the years ended January 1, 2017, December 25, 2015, and December 26, 2014, respectively.