What workers compensation classification code do I use for a business owner?

A great question about workmans comp that I was just asked by an insurance agent!

Problem is…the answer’s not that easy! To begin, you should always determine, based on the type of insured entity you’re dealing with, whether or not, in your specific state, the owner is included within coverage or excluded and determine the payroll or remuneration to be used if included. If the owner can be, or is required to be included within coverage then the next step is to determine the proper classification code to be used. And here’s where it becomes clear as mud!

Many folks involved within the workers comp arena, agents and underwriters alike, would naturally think that the owner of a business should be included under the clerical or outside sales classification, these usually being a much lower rate or cost classifications. This may or may not be true and the proper assignment should really begin with a detailed description of the owners duties, responsibilities and activities conducted for the business.

You must further determine the type of business operations involved. Most business operations are classed into what’s known as the governing classification, or the class that best describes the business operations and which includes the bulk of payroll.

Many states however have different rules that apply to classification of employees for construction type risks over general business type risks. Questions like; “Is payroll separation allowed?” and “Can the owners payroll be split over more than one class code?” must be answered. Take for example under the State of Missouri workers compensation rules they allow 10% of an owners payroll to be split away from the governing classification into either clerical or outside sales, which ever one is more descriptive of the work the owner may actually do.

So as a general rule….the owner of a business, if included within coverage, will be assigned to the governing classification code for the business…or the class code that describes the principal operations in which the owner is engaged…of course subject to more specific rules that may apply for the state in question.

See…clear as mud!

Hope this somehow helps you out! Thanks!