Classification Code Reviews are one of the services our firm provides. I have to admit it’s a very popular topic and a conversation that I have multiple times a week with a variety of employers. It’s usually with employers who have experienced some sort of reclassification or other classification code related problem. Funny thing, after all these years I’m still surprised at most of the things I hear during these conversations. So I started wondering why workers compensation classification codes don’t seem to make sense to so many people.
The classification process becomes confusing to many folks because it often doesn’t make sense! Just try and tell an employer that because his worker spends 10% of his time in a higher rated class and 90% of his time in a lower rated class that according to the rules of classification that employee’s entire rating payroll goes into the higher class code. Now doesn’t that make perfect sense? But under certain circumstances, that’s exactly how it works! Does that make sense?
There’s a common misconception that classification codes apply to individual workers when in fact this is not the case. In general, it’s the business that is classified. The operations performed by the business are taken into consideration and an appropriate, descriptive code is applied.
The first mistake that most employers make is assuming that it’s the individuals within their business that are classified.
Sure there are exceptions! And the primary exception as to how class codes are assigned is found with employers in the construction industry. Under certain specific circumstances, a construction industry employer may apply different classification codes to different work that an individual employee may perform. But don’t be fooled. For this separation of payroll to be allowed the employer must follow the rules to a T! And here’s a hint, show your construction employees work in percentages to an auditor, and all their rating payroll will go into the highest rated class of work they perform.
So there is another example of why classification codes just don’t make sense. Why allow one industry to split payroll and not another? Different rules for different industries? You bet!
Don’t get me wrong! There are reasons why classification of a business for workers compensation purposes can be difficult. Classification manuals, descriptions and the application of codes are full of pitfalls.
Misclassification of an employee is not always an attempt on some individual’s part to find a lower premium. While that certainly goes on with, what one must call, routine frequency, it’s not always about that. Couple the fact that an employer will normally want to find the lowest premium for their workers compensation policy with the complicated methods used in assigning codes to a business the whole process then becomes a formula for code problems.
So what can an employer do to get a better handle on this whole process? Here’s a couple of thoughts:
- Throw out the idea of using common sense. When it comes to workers compensation codes, remember they often don’t make sense!
- The classification process is governed by a set of complicated rules. Rules that are usually difficult for an employer to even gain access.
- Everybody in the process, employers, insurance agents, insurance company underwriters, auditors and even rating bureau employees, will have a different interpretation of the rules and how they are supposed to apply.
- Never underestimate an insurance companies ability to dig their heals in and stand by, what may be, a poor interpretation of a code application.
- For the employer, never underestimate your desire to want to apply the lowest rated class to your policy.
- Remember, classification is not about finding the cheapest class code or the more expensive class code.
- It’s about finding the correct class that best describes the business operations!
Sure this process can be problematic. Sure there can be disagreements. Sure there can be over paid premiums or under paid premiums. But the real goal is one of accuracy!
Oh yea, did I forget to mention that the use of a code on an employers policy is a dynamic process? That’s right. Things change and when the operations of a business change so do the classification of it’s employees!
Hope this helps you out and thanks for reading!