Inaccuracies and Misunderstanding of Workers Compensation Rules – When Employers Can’t Have Their Way

Workers compensation is a confusing and sometimes seemingly contradictory world especially when it comes to the interpretation of the rules governing classification. We’ve worked many cases involving misclassification of workers with many successful outcomes for the involved employer. Sometimes it doesn’t go the way the employer thinks it should. So in this post we’ll talk about expectations and outcomes of employee classification.

Think about it. An employer has had workers compensation insurance for many years. Has gone through many audits and has never had a problem related to employee misclassification. Then one year something happens and they receive a notice from their insurance company that a classification change would be processed on their policy adding a never before used code that, unfortunately, carries a much higher rate per hundred of payroll than their previous code. The employer naturally has an adverse reaction to this news and immediately contacts their insurance agent for clarification. The agent checks into the situation and is faced with delivering the bad news to the employer that in fact his workers compensation premium will just about double from where it has been for many years. All due to this “reclassification” of his employees.

So whats the employer do? He has to get to the bottom of this! There must be a mistake! How can this happen? Should I go ahead and say…”it’s not fair!” We’ve heard it all.

It usually begins where the employer, faced with this feeling of impending doom, takes on the task of becoming a workers compensation expert. They hustle around gathering all the information they can about the rules of workers compensation classification, class code descriptions and set off on a course of learning everything they can about what’s happening to them. This is a very natural thing and something that any one of us in the same situation would do!

Lets now be brutal and put this into perspective. The employer really knows nothing about how to properly classify an employee.  The insurance company and insurance auditor, who more than likely discovered the error, should know the rules. Some do and some don’t. The insurance company interprets the classification descriptions and makes the call to make a change. The employer is always at a disadvantage when trying to rebut a classification change.

It’s at this point that one of two things has happened:

  1. The reclassification is correct and the insurance company and auditor has got it right.
  2. The reclassification is incorrect and the insurance company and auditor had got it wrong.

The employer, after learning as much as they can about what’s happened, will begin a series of disputes usually by writing their agent and the auditor or company audit department. They will try to convince the insurance company that there is a mistake in how they have assigned employees into the higher rated classification. They will usually start off by indicating that their employees do something like 90% of their work in the lower class and that some may do 10% in the higher rated classification. Or they may argue that the new code does not apply to their operation because most of their employees fall into the lower rated class. They may go on to site specific NCCI or other rating bureau rules regarding the application of payroll , splitting payroll or other such items in their defense.

Unknown to the employer these actions will only provide the insurance company with ammunition and further proof that the action they took is correct. This happens because the employer does not know how the rules work together. They are not aware that talking percentages in regards employees classification or payroll does not work. They are not aware that exposure to higher or more hazardous classifications by all employees trigger the higher rate class to be applied for all employees. Employers incorrectly believe that using common sense to negotiate lower rated classifications will not work.

One of the most difficult jobs we have is telling an employer that the action taken by their insurance company is correct. It happens. But a word to the wise. If your insurance company changes your codes or reclass your employees you should always have their actions reviewed by an independent workers compensation consultant.

Don’t go it alone because you may just make it worse! 

Hope this helps you out! Thanks for reading!

Topic Menu: Workers Compensation Codes and Classifications