We have a construction business and most of our employees do more than one job, what class code would we use? A great workers compensation question I was recently asked and a situation that causes many employers problems at audit time.
For those states that fall under NCCI, construction related risks are allowed to use split codes and separate payroll for employees between different classifications. For a construction company this is a great way to control work comp costs. But hold on there! It’s not as simple as it sounds!
There are very specific rules that must be followed before split codes and payroll separation is allowed. This is an area that always creates many problems for an insured employer at audit time. Classification codes are governed by specific code descriptions and a set of rules that must be referred to before an employer sets up their payroll records for split code or separation. Making incorrect assumptions as to how a construction workers job functions may be separated can cost the employer many thousands of dollars at audit. You must be careful!
Here’s an example:
Lets say the employer is a residential construction company who builds new residential structures, puts additions on existing structures and installs cabinets and wood flooring. They run two work crews. One crew does framing, siding and other carpentry work associated with building a house. The other crew specializes in installation of cabinetry and wood flooring. Some of the employees do both jobs. Two codes come to mind:
- 5645 – Carpentry – Detached One or Two Family Dwellings
- 5437 – Carpentry – Installation of Cabinet Work or Interior Trim
You may make the assumption that you could separate payroll or use split codes and assign certain specific employees, depending on what their specific work duties were, between both of these codes. An assumption that would probably be incorrect and cost you at audit. Why? Because in both code descriptions there are exceptions. 5437 says it does not apply to contractors who perform “ANY OTHER CARPENTRY OPERATIONS AT THE SAME JOB OR LOCATION.” And 5645 specifically says “5645 MUST BE APPLIED TO INSTALLATION OF CABINETS…IN LIEU OF 5437 WHEN EMPLOYEES OF THE SAME CONTRACTOR PERFORM ANY OTHER CARPENTRY OPERATIONS AT THE SAME JOB OR LOCATION.”
So if the same contractor performs both type of carpentry work on the same job or location then you can not split between codes. All payroll goes into the 5645 code, the higher rated code. So if an employer had mistakenly separated payroll for his crews on these types of jobs then all the payroll shown in the lower 5437 code would be moved at audit into the higher 5645 code.
However…if the contractor for example had secured a separate cabinet installation job, sent his cabinet crew out to do the work and there was no cross over with other carpentry work being performed by his company on that job then 5437 could apply but only for that specific job!
Get it? Clear as mud? See how easily it may be for an employer to get caught up in an audit problem? Did I mention proper record keeping is a must?
I guess the point of this post is to be careful and don’t make assumptions! If you have an audit problem, don’t understand what’s happened or why the insurance company has moved employee payroll into a higher rated class code at audit, give us a call or seek out another workers compensation premium consultant for help!
Hope this helps you out! Thanks!