How do you know if you need to add a new workers compensation code to your policy? Good question! And my answer will probably be, you don’t! But in this post we’ll talk about a few things you should keep in mind about classification codes, your policy, audits and the premium you pay.
The classification of your business is represented on your workers compensation policy by a classification code and description. The purpose of classification is to group your business operation into a description that is similar to others performing the same operation in your particular field of work. While in some circumstances it may be about individual work processes, in general it is not. But rather it is about classifying your business as a whole.
For example let’s say you own and operate a retail store. More specific, a shoe store. Retail is a broad general classification and when you take a look at the classifications available you’ll find there are a great number specific options from which to choose. Look a little closer and you’ll find the specific class code, 8008 which describes a retail shoe store. Upon closer examination of the code description you will find that this code is actually the code for Clothing – Wearing Apparel Or Dry Goods – Retail and includes many of the more individual operations in which you may expect to find in a normal clothing store. The description goes on to mention that it applies to a store selling any or all ready to wear clothing including suits etc and shoes. Of course the list is much longer. There is also a list of operations not included such as stores engaged principally in mail order sales of such items. Typically mail order sales go into the Store Wholesale classification of 8032. Standard exception codes such as clerical and drivers will also apply.
The point here is that for the most part it’s a business that’s classified and assigned a classification code. However certain types of businesses, like construction, allow more than one classification code to be assigned.
For businesses where multiple class codes are assigned adding a new code during the policy period may mean the difference between having a controlled audit experience and one that becomes very unreasonable and costly. Remember, every class code carries its own rate which is used to generate the premium an employer pays. So having the correct codes on your policy is paramount to paying the correct premium.
Why would you need to have a code added to your policy during the policy period? Consider these points:
- You Change Your Business Operations – Any change in your operation may cause a resulting change in your class codes. That change may carry a higher rate causing your premium to be increased. Or it may carry a lower rate causing a reduction in your rate. Either way, a change in operations is a key trigger to having your classifications revisited.
- You Acquire Another Business – Same as above. Any change in your operation may trigger some resulting change in your codes.
What happens if you do not modify your policy?
- If you wait until the audit you may be surprised by the outcome – Changes to your policy during the policy period (depending on your specific circumstance, carrier and method of premium payment used) may allow you to spread your increase in premium out over remaining payment installments. Waiting until audit to deal with a resulting increase in premium will often burden you with making a single payment to the insurance company for the increase in premium.
- Audits are completed after the renewal of your policy – Not only will you have to deal with the resulting changes developed by the audit but your insurance company will modify your already renewed policy often creating significant additional premium due in a lump sum.
All of these issues can be avoided by simply keeping in touch with your workers compensation insurance provider, agent, broker or carrier. Use their knowledge as a resource and be sure to discuss any changes or modifications in your business operations. No one expects a business owner to know the proper classification codes! But do yourself a favor, keep in touch with those who provide your coverage and talk with them about your operations.
As a final thought, if you feel you’ve had an incorrect audit performed or that your classification codes are incorrect on your policy, seek out the help of an independent workers compensation consultant for assistance!
Hope this helps you out and thanks for reading!