One of the fundamental components of workers’ compensation insurance pricing is the process of classifying different workplace exposures into a system of codes. Each code has an individual rate dependent on the risk of that exposure. Obviously a classification code for clerical work has a much lower rate than the codes for construction work, because the average exposures of those two types of employment are much different.
- New York Code 5000 – Chimney Construction – Rate $29.05
- New York Code 8810 – Clerical Office Workers – Rate $0.27
However, when you move in to less obvious examples, the question of proper classifications becomes much more complex and unfortunately the use of an improper code is very easy and happens more than it should. Doing so incorrectly can be an expensive mistake for a business, potentially costing them tens of thousands of dollars per year(sometimes hundreds). Some businesses actually go years being slotted into more expensive class codes.
Employers can use more than a single classification code on a policy. Employees are grouped into their classifications and their payroll will be rated accordingly. Sometimes small details can make a big difference in which classification code is used, which in turn can make a big difference in rates and premium. As a business owner, it is important to understand the codes under which your employees are classified and make sure the definition includes the work they perform. To do this, you can use the links we provided at the bottom of this page. If your business operations change, you must re-visit your classifications closely.
When a mistake is made it’s usually at the beginning of the policy year and not noticed until you receive the results of your workers comp audit and are shocked by the increased premium even though your payroll stayed the same. A mistake can be made by either the auditor, the broker, or the business owner.
When an Auditor Makes a Mistake
Sometimes an auditor will simply place employees in the wrong class code. This is unfortunately simple to do because there are several hundred class codes. Auditors often claim this is the fault of the business owner, however. They will likely say the business owner did not provide enough information for proper classification. To make sure this doesn’t happen, someone from the company should stay with the auditor at all times to insure the auditor has enough information for the placement of employees into the proper class code. Simply handing over financial information to an auditor will most always create a problem. After all, the workers compensation audit is designed for speed, performed typically by an outside firm that pays the auditor $150 or so per audit. That person wants to get in and get out quickly because time is money. Further insurance carriers by law have only a small window in which to perform this audit as mandated by state law – typically sixty days after the policy expiration. Finally, If they misclassify an employee it’s almost always in the carrier’s favor because the DEFAULT is to the highest rated code.
When a Broker or Business Owner Makes a Mistake
By far the most common mistake a business owner or broker makes is putting too much payroll in to clerical or outside sales codes. A general rule is that if the employee who is classified into clerical has any interaction with customers, if they take money from customers, or if in their job duties they perform any job function of the governing classification then they will be moved into the governing class at audit. This will cause the employer to suffer an unexpected additional cost for his/her workers compensation premium. These codes are abused and when it’s audit time it’s the auditors job to catch the abuse. Sometimes businesses forget to split their payroll into their general operations and clerical therefore actually paying way more than they should.
Construction is Especially Important
For construction work, each distinct type of construction or erection operation at a job or location shall be assigned to the classification which specifically describes such operation provided separate payroll records are maintained for each operation. Any such operation for which separate payroll records ARE NOT MAINTAINED shall be assigned to the carrier’s highest rated classification which applies to the job or location where the operation is performed.
The bottom line is to recognize that errors do occur, and they can be costly. However, by knowing what to look for, being pro-active, not accepting every classification as correct and by working with experts who know the system inside and out, you can save significant dollars, year after year.
If you haven’t been doing this, workers compensation premium recovery (Comp Check) is something you should consider. It checks for class code errors, experience mod errors, and more. It’s done on a contingency basis, so you don’t get charged unless we (1) find errors and (2) are successful recovering money on your behalf. We can look back three policy years. It’s a great tool to correct past errors, but it is limited to just that. As Risk Managers, we of-course suggest you focus on partnering with someone (like us) that will help prevent the errors in the first place. If you rely on premium recovery, you are consistently resigning yourself to splitting money that should be yours if it were not for a simple error.
Class Code Lookups
You can look up your specific codes and see the history of rates for those codes:
- New York Class Codes : http://www.nycirb.org/
- New Jersey Class Codes: http://www.njcrib.com/Class/classification.asp
- California Class Codes: http://www.wcirb.com/content/classification-information
- Massachussetts Class Codes: https://www.wcribma.org/mass/ToolsAndServices/MACI/Main.aspx
- Pennsylvania Class Codes: http://www.portal.state.pa.us/portal/server.pt/community/underwriting/10437/current_swif_rates/552685
- Most Other States: NCCI(Must Purchase) https://www.ncci.com/NCCIMain/ServicesTools/OnlineCatalog/Pages/CLASSCODE.aspx?pnl=related