This is a tough problem and the answer is not one many employers or insurance agents will like. But lets learn about business owners and what workers compensation codes to use for them when they’re included in workers compensation coverage.
We run across this problem quite often. Where, on audit, the payroll for an owner of a business is moved from a lower rate class code such as clerical or outside sales into a much higher rate code or into the governing classification of the business. This never fails to create confusion, rage and a large additional premium due audit!
Here’s something to remember:
- The process used to determine the proper classification code for the owner of a business is no different than that used for other employees of the business.
Yes, there are some special considerations and limitations that must be applied when including a business owner in coverage on a workers comp policy. But when it comes to determining the proper class code to use for an owner the same rules apply. As a matter of fact, I’ve written about this topic before…check out this post for more information.
Here’s some thoughts that might help you out:
- If rating payroll for a business owner is placed into the clerical class code, it’s probably wrong! Clerical code 8810 is very specific and over the years the code description has been tightened up. The typical proper use of 8810 will be that of an office exposure, separated by a physical barrier from the rest of the business operation and no contact with the general public or customers. Think of a bookkeeper who goes to work in the morning closes the door to their office and then leaves at the end of the day to go home. It’s almost that restrictive. Now think of a typical business owners duties. Sure may include some of the characteristics of a clerical employee but they also interact with other areas of their business, meet with clients and vendors and maybe even visit job sites. The scope of a business owners duties are much greater than that of a clerical employee, their exposure to risk is much greater, so why would you expect a business owner to be classed in 8810, clerical? Oh, you say it’s about getting a cheaper price? That won’t fly! Proper classification has nothing to do with lowering the cost of a policy. It has to do with being correct.
- How about using code 8742, outside sales? After all a business owner is a salesman right? Maybe part of their duties would fall into the sales category but do they visit the job site? Do they direct employees on a daily basis? Is there a layer of management between the owner and their employees? And just what type of business are we talking about anyway? Construction? Manufacturing? Other? Typically outside sales is not the only responsibility of a business owner.
Of course this is not to say that in some situations, classifying a business owner into these codes is not correct. But you must start with a detailed description of the duties of the business owner. You should not just lump the owner into one of these codes but rather follow the steps of proper classification to arrive at the correct class code to use for an owner.
Lesson Learned: If you are a business owner and are classified on your workers comp policy as clerical or outside sales, don’t be surprised at audit if your rating payroll is moved into the governing classification code of your business…and don’t be surprised at the additional premium!
If you are having a problem with workers compensation classification codes, audit or need help with an audit dispute be sure to contact a workers compensation consultant!
Hope this helps you out!