Workers Compensation Audit – Reclassification or Reassignment of Codes

Reclassification of workers compensation codes is a common, but troublesome problem that continues to exist. It persists for several key reasons…I’ll touch on a few in this blog.

To begin, the whole process of classification of employees into a proper work comp code seems by many in our industry to be a mystery in and of itself sprinkled with a bit of smoke and mirrors just for grins! It’s not too hard to get it right when the work processes or job conducted by an employee fit neatly into a well defined code description. But when an employee’s job falls outside of the scope of a defined code, things become much more difficult.  The application of analogy may be required to determine the proper code. Basically this is where an employee’s work process is broke down into fine details and a determination of which code best represents those processes and details is made. Because of the complexity of proper code classification and potential for error, it’s important to verify that proper codes are being used on your policy, preferably before an audit is conducted. You can go to our website and view an example of a proper code assignment.

Classification code errors may occur at several key points during the process of purchasing and servicing a workers compensation policy. A few of these key points are:

  • when the servicing agent initially sets up the policy;
  • when the company underwriter reviews the application for issuance;
  • when an inspection is conducted by the insurance company or rating authority;
  • and when an audit is conducted by the insurance company.

Out of this short list, the one that has perhaps the greatest impact on an employer is the reclassification or reassignment of codes at audit. It’s particularly harmful because an employer is usually caught off guard and has little idea of the impact this act may have on their premium until they receive a large audit bill from their insurance company. It’s at this point we usually get a phone call from the employer!

Here’s some factors that may cause reclassification of employees at audit:

  • the original code was incorrectly assigned when the policy was set up;
  • the employers work process have changed during the policy period;
  • the auditor incorrectly reclassified the employees into a different class code.

Sometimes the auditor gets it wrong…sometimes they get it right…but remember, the auditor performs their duties for the insurance company.

It’s when they get it wrong that an employer may need help. Considering the complexity of the whole process, most employers are not aware of the code details and rules in place to protect them. So when faced with an adverse audit situation, a reclassification or reassignment of codes, an employer should always seek an independent opinion of their situation. Have an audit review or code review conducted!

Hope this helps you out! Thanks!