California Single Enterprise Rule – How it effects workers compensation classifications

The California Single Enterprise Rule is often sited by the WCIRB (Workers Compensation Insurance Rating Bureau) in denying the use of multiple classifications on a workers compensation policy. Usually after an employer files a dispute and usually after receiving an adverse workers comp audit. Let’s take a look at Section III, Rule 2 of the California Workers’ Compensation Uniform Statistical Reporting Plan, Single Enterprise, and see how it works.

Workers compensation classification systems are developed by a Workers Compensation  Advisory Organization used by each individual state. At this time there are 16 individual Advisory Organizations. NCCI, the National Council on Compensation Insurance, provides this service to approximately 35 individual states. The remaining states have developed and maintain their own. The WCIRB, Workers Compensation Insurance Rating Bureau of California, is the Advisory Organization for the state of California. They are responsible for making, enforcing and maintaining the rules and procedures of workers compensation in their state.

The Single Enterprise Rule provides guidance in the proper classification of a business operation. This rule states “If the employer’s business, conducted at one or more locations, consists of a single operation or a number of separate operations that normally prevail in the business described by a single classification, the entire exposure of the business shall be assigned to that single classification.” It goes on to indicate that separation or division of payroll is not allowed unless the specific wording of the classification that applies to the risk says it can be done.

A proven technique in controlling the cost of a workers comp policy is to apply multiple classifications to a risk if allowed. For example a metal goods manufacturing risk may involve metal pressing operations, cutting, welding, assembly, warehousing, shipping and delivery. Individually these classifications will carry different rates and it may be a benefit to use each classification on the business. But under the Single Enterprise Rule the metal goods manufacturing code may be all inclusive of these individual operations and thus the separation would not be allowed.

The key here is “if allowed.” This is where we see employers and agents alike making mistakes. The rule states division of payroll is not allowed, unless wording in the classification code description that applies to the business allows it. So this would lead you to believe the place to start for proper classification under the California Single Enterprise Rule would be to read the code descriptions.

When looking at other, separate operations that occur within a business, like in the example above, you’ll find California uses the term “normally prevail.” For example in our metal goods manufacturer above, they manufacture products but separate operations are the warehousing and shipping of those products. If in the classification code description for metal goods manufacturing it specifically indicates that warehousing and shipping be separately classed and rated, then separate codes may be applied. But if the metal goods manufacturing code includes these operations all payroll must be included because these operations would normally prevail in the metal goods manufacturing business. Standard Exceptions; Clerical Office Employees; Outside Sales and General Exclusions still apply.

So if you operate your business in California watch out for the Single Enterprise Rule! Just because your business may include multiple, separate operations, does not mean you can separate those operations from the single classification that best describes your overall business operation, even if they are conducted at separate facilities!

When in doubt or if you find yourself facing a problem with an adverse workers comp audit or have had a dispute go against you be sure to seek out the help of an independent workers compensation premium consultant! That’s what we do, drop us an email or give us a call!

Hope this helps you out!