You Don’t! One of the most dangerous things that an employer can do is try to determine their own workers compensation codes. Time after time we’ve assisted employers who have taken it upon themselves to determine the appropriate code for their business only to find they’ve made a gigantic error in how codes are applied and are now facing a gigantic additional premium bill at audit time. In what world should it be left to an employer to pick their codes? Let’s explore further.
When an employer goes on-line and begins searching for workers compensation insurance they’ll find a ton of places they can sign up and buy coverage. That’s not the problem. The problem comes when an employer is given the opportunity to choose their own codes. Many times on-line providers of workers compensation insurance will have a qualifying questionnaire or some sort of basic rating program that’s available for the employer to fill out and get a pricing indication without ever having a discussion about what duties their workers actually perform. Other systems may actually leave the on-line submission for coverage entirely up to the employer.
We worked a recent case where the employer secured coverage through one of our country’s largest state funds entirely on-line. The application was completed by the employer, the codes were chosen by the employer, the premium was computed by the fund and the employer paid the premium to the fund on-line. Sounds great right? Until the employer was presented with a $30,000+ bill at audit time!
Lets admit it, employers are always looking for cheaper workers compensation insurance. And sometimes the quest for cheaper insurance may lead them down a path full of unknown hazards. Cheap may not always be what’s in an employers best interest especially when it comes to workers compensation insurance.
There’s plenty of knowledgable insurance agents out there that can help an employer properly secure workers compensation insurance. We recently worked another case where we were contacted by an agent who had provided years of service to a client only to be called on the carpet when another agent brought a cheaper quote for the employer to consider. This is a classic, here’s what happened. The original agent had classed the employer into 5645, residential carpentry. The employer is a home builder who has his own crews that perform all the carpentry work on a project which includes framing and interior trim and installation of cabinetry. The new agent brought a quote to the employer that split payroll between 5645 and 5437, interior carpentry. Of course the interior carpentry rate was significantly lower. The new agent showed the employer that if he went with him the employer could save thousands of premium dollars! Not!! The original agent had done a great job for the employer by properly classing his employees into the 5645 code. You see, the new agent did not realize that this specific employer, who’s workers performed all carpentry work on a project, would not qualify for payroll separation between these codes. Sure in some circumstances this may apply, but not for this employer! Lucky for the employer he stayed with his original agent otherwise he would have had a big surprise come audit time!
This kind of stuff goes on all the time. The employer didn’t know the difference between the codes and how they should really apply. And in this case the new agent didn’t know either! Doesn’t it make common sense that if a home builder has a crew that does framing and another that does interior trim that you should be allowed to separate those? Sure it does, but for the builder mentioned above you cannot!
Perhaps this is a good place for me to remind you that when it comes to workers compensation classification issues “common sense” will get you in trouble just about every time. It’s not about “common sense.” It’s about knowing.
Sorry, I may have got a little off track in this post but the point is that classification of employees can be tricky. It should never be left to an employer, without guidance, to determine codes for use on a workers compensation policy. If you need help with a classification code problem contact an independent workers compensation consultant!
Hope this helps you out and thanks for reading!