Important information on work comp codes and classifications….
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Workers Compensation Codes are a complicated compilation of job definitions designed to accurately identify various workplace exposures. You can verify that codes used on your policy are accurate through a work comp code review. Each specific job classification is assigned a four-digit number which is then used throughout the workers compensation system. These systems of codes are known as classification codes. Classification codes are a primary part of the workers compensation pricing mechanism. Each workers comp code has its own rate for the purpose of calculating premium on a policy. Rating authority inspections, such as the NCCI inspection process play an important role in proper classification. Proper classification of an employer’s business can save thousands of dollars in the workers comp premium paid. Unfortunately the use of an improper workers comp code is very easy, given the complexity of the overall system of workers compensation classification.
In this section of our website we provide you with detailed information on codes, the workers compensation classification system and their impact on work comp premiums.
The Classification System –
The workers compensation classification system was developed to provide an orderly method of grouping similar employers where each workers comp class code would reflect job exposures common to them. Under the classification system it is important to know that it is the business of an employer that is classified and not
separate occupations or jobs of individual employees within the business. Most business operations are classed into what is commonly known as the governing classification. This is the single workers comp code which most accurately describes operations of the business. A simple way of understanding the classification system is by following the example shown below.
A Workers Comp Code & Rate Example:
The code for high steel construction workers would carry a much higher rate than the code for clerical or inside office workers exposure. While this is a drastic comparison it makes the point that different work exposures will generate different rates. Each of these occupations is represented by a different class code and different rate.
Information about NCCI:
National Council on Compensation Insurance, otherwise known as NCCI, is an independent advisory organization who developed and maintains the workers compensation classification system as used in most states. The NCCI class code system is made up of somewhere around 700 different classifications. Each representing very specific and different workplace exposures. NCCI is also responsible in most states for making judgment calls on correct use of the class codes. NCCI may even inspect an employer’s operation to determine the proper codes to use for the exposures present.
Some states do not use NCCI but rather have their own classification systems in place. Manuals, rules and procedures for managing workers compensation are all controlled by the advisory organizations used in these states. You will find that all are similar to the NCCI system but can have drastic deviations in the way they classify a business. Learn more about the NCCI inspection process here.
States using a modified version or those that do not use NCCI for their workers compensation code classification are:
- North Carolina
- New York
- New Jersey
Be sure to visit our individual state pages or go to our state rules directory for more details on who controls classification codes for your state. From our State Rules Directory you can look up your specific state information.
How to Determine The Proper Workers Compensation Class Code –
Determining the proper classifications for an employer is not easy and sometimes can be quite difficult. With nearly 700 different codes available for use it is certainly easy to see how mistakes or errors in can be made. Misclassification of employers operations occurs each and every day. Many employers go for years being slotted into wrong, more expensive class codes resulting in thousands of dollars of overpaid workers compensation premium. Determining and applying the proper workers compensation code is directly related to how much premium an employer pays.
Workers compensation codes are published and circulated in manuals by each individual advisory organization. For example, NCCI publishes it’s classification definitions and codes in the National Section under Part Two of the Basic Manual. Additional NCCI classification code descriptions can be found in the NCCI copyrighted manual
titled the “Scopes Manual.” Access to the copyrighted Scopes Manual is only available by purchasing the manual
either in print or by securing an on-line subscription. As a side note, subscription to NCCI can be very expensive. Also keep in mind that the Scopes Manual is only a guide for workers compensation classification code determination for states using NCCI as an advisory or rating organization. It’s the classification codes as published in the NCCI Basic Manual that count! As a matter of fact it it’s determined there is some sort of conflict between the code information found in the Basic Manual and the Scopes Manual it’s the Basic Manual classification code information that is used. An interesting side note, while the Scopes Manual is a publication of NCCI with information compiled from NCCI manuals, the Scopes Manual itself has only been approved for use by a few states.
Each class code description found within the Basic Manual and Scopes Manual will contain the four digit classification code, an N/A indicator, phraseology, cross-reference, state special, scope and state addendum. Here’s more information on what each of these means.
- Classification Code – the four digit number that is assigned to the definition
- N/A Indicator – if present indicates code is not available for use in states listed
- Phraseology – this is the classification description filed and approved for use in the states where effective
- Cross-Reference – additional descriptions that are assigned the same workers compensation code (one work comp code may have several definitions assigned to it)
- State Special – some states may decide to use the national code with modifications for use within its state to accommodate certain industries with modifications
- Scope – the actual description of the “intent” of the workers comp code
- State Addendum – states use this area to indicate their own interpretations of a scope when it differs from NCCI
Assignment of Classification Codes –
Assignment of a workers compensation code is a cumbersome process. Here’s a classification assignment example as used by NCCI and shown in the Scopes Manual:
- Assume that this risk is a window cleaning contractor located in Arkansas.
- To begin classification you would look up “window cleaning” in the alphabetical index.
- You will find a few window related business shown but not “window cleaning.”
- The next step would be to reference the industrial index which lists codes based on industrial groupings with similar characteristics.
- You would find two potential codes to use:
- “Laundering, Cleaning and Dyeing”
- “Building Operation-Miscellaneous”
- Under “Building Operation-Miscellaneous” you find several codes that may apply:
- Buildings operations by contractors
- Buildings operations by contractors: includes window cleaning above one story (CO)
- Janitorial service by contractor
- Janitorial service by contractor: includes window cleaning (FL)
- You notice that only two classification codes apply in the specific states of Florida and Colorado and not in Arkansas where your risk is located.
- Looking closer you would notice the two remaining descriptions use the same code, an example of cross-referencing.
- You would then go to the definition for the code that applies to Building operations by contractors or Janitorial service and discover this code includes window cleaners.Assume that this risk is a window cleaning contractor located in Arkansas.
To further complicate things we have to throw in the concept of the governing code or basic classification.
A primary function of the workers compensation classification system is to classify the business operation, not individual occupations or jobs within the business. The governing classification is the work comp code, other than standard exception classes, that best describes the business and that produces the greatest amount of payroll. So while a business may have multiple codes that could apply, only the governing class will be used for determining the workers compensation premium.
We just mentioned workers compensation standard exception classes. These are classes that describe occupations that are common to most businesses. Standard exception classes are not included in a basic classification unless it is specifically mentioned in the code wording.
- Standard exceptions are:
- Clerical Office or Drafting Employees – Code 8810
- Drivers, Chauffeurs and Their Helpers – Code 7380
- Salespersons, Collectors or Messengers – Outside – Code 8742
- Automobile Salespersons – Code 8748
The NCCI classification system makes one big exception to the usage rule of single classifications. Construction operations are allowed to assign multiple workers comp classifications for actual individual employees work. This is known as separation of payroll. To qualify, a construction employer must show the specific hours for each work comp class code performed by employees. Percentage or estimations of this work is not allowed. Documentation must show the actual hours per code.
Look Up Classification Codes –
Sure you can but the real question is SHOULD you look up your own workers compensation classification codes! We’re not fooling around here! If there’s one thing you take away from our section on the workers compensation classification system it should be that it’s a complicated system. Class codes and how they are assigned are very often difficult for experienced insurance professionals. The simple examples shown above should give you an indication as to just how hard this task can be.
There’s penty of places on the web where you can go to look up a class code. And that’s usually where the problem starts!
When an employer takes up the job of trying to class their own business operation they often fall short of picking the correct classification. They fall short because of the complexity of the system itself and because they are not schooled in the proper methods of classification. Sure, the business owner employer knows their business but they do not know the classification code system!
For example, let’s go on line and look up the workers compensation classification code for Carpentry. Go to any site that lets you do this and simply type in “Carpentry” or “Carpenter.” Somewhere in your search results you’ll be presented with a code for residential carpentry. You may also find a code for interior carpentry. Let’s say our employer at this point chooses the interior carpentry class code. Remember, he looked it up online. He talks with an agent and tells the agent that he is in the business of putting up cabinets and interior doors and trim in new and remodel residential construction projects. The agent is not that familiar with selling workers compensaton so he and the employer decide that the interior trim class code is where he belongs. The employer has a ratable payroll of $100,000 and the rate per 100 for interior carpentry is $7. The basic premium is $7,000.
It’s later discovered, at audit, that the employer, in our example, actually spent most of his time remodeling kitchens and adding additions onto existing homes. His carpentry crew would not only install cabinets, interior doors and interior trim, but would also frame out and finish entire additions. If you want to built out and expand your kitchen he’s the guy to call! Now for the bad news. He chose poorly! The correct classification code was residential carpentry. That code carried a rate per 100 of $18. The correct premium was $18,000. Yes, he got a bill for the additional $11,000!
Unfortunately this example turns out to be a very common problem.
A word of caution! Be careful when trying to look up your own classification codes. You really should seek out the help of a workers compensation professional or an agent who’s experienced at placing workers compensation coverage.
A Few Critical Points You Need To Be Aware Of:
- How are separate legal entities handled?
- The rules of classification are applied separately to each legal entity who operates within a single state. This also applies when multiple legal entities are included on one policy.
- What happens when a business is clearly not described by a single specific classification?
- This is where things get real tricky! When there is no one specific class description available then the class that most closely describes the business will be assigned. To help determine if this method of code assignment has been applied to the policy in question you may simply take a look at Item 4 of the policy information or declaration page where you will find, if properly executed, a brief description of the business operation along with the corresponding code assigned. This method of code assignment may not be correct. Policies containing this type of assignment should be reviewed for accuracy.
- Can you assign more than one basic class to an employers policy?
- Yes. As long as all three of these very specific conditions apply:
- The basic class of the employer requires certain employees or special operations to be rated separately.
- The employer performs at least one of these operations:
- Employee Leasing including employers providing labor contracting and temporary labor operations
- Mercantile Operations
- The employer conducts more than one operation in a state.
- This is a tricky one! It is a long and complicated rule that describes this qualifier. Too long for us to go into in this section. If you believe you may qualify, ask to have your codes reviewed.
- Yes. As long as all three of these very specific conditions apply:
Rules of classification are not clear! We often work cases where an employer has been provided with the scope or description of a classification and upon reading will misinterpret the meaning and application. In order to understand how an employers operation is classed you must gain an overall understanding of the entire classification system. Singling out a specific rule, without taking that rule within context of the entire system, will often lead to a misunderstanding of the code in use. An employer will naturally seek a class code for their business that carries a lower rate. It’s an economic consideration that all involved will understand. Determination of a correct class code requires a detailed analysis of an employers entire operation. Many codes are very specific to certain business operations and those that fall under this category are somewhat simple to apply. However it’s those operations on the fringe that often cause problems in assignment. If your business codes seem not to match your business operations we would suggest that you ask for a code review.
Who Assigns Work Comp Class Codes?
Class codes can be initially assigned or modified by several different sources. The typical group of folks who have something to say about work comp classification code assignment are listed below:
- Insurance Agent – Workers compensation class codes can be initially assigned by an insurance agent who provides workers compensation insurance to the employer in question. The agent will typically ask qualifying questions of the employer to try and determine exactly what operations the employer’s business performs. Then try and determine the correct class code to make application to the insurance company for coverage.
- The Insurance Company Underwriter – After an agent submits the workers compensation application to the insurance company it will be reviewed by the underwriter who may agree with the agent in his classification of the exposure or who may change the class code to another that they feel more appropriate.
- The Insurance Company Auditor – After the policy period for the workers compensation insurance has expired and an audit is performed on the employers records, the auditor may adjust the code to better fit the operation as they may see the need.
- NCCI and other Advisory Organizations – NCCI and other Advisory Organizations have the responsibility to interpret and apply class codes. Sometimes these organizations are requested to inspect and render their opinions on the proper classes to use. Keep in mind these organizations also make mistakes, improperly placing employers into the wrong, higher rated code.
As a helpful hint, do not be fooled if someone tells you work comp code classification assignment is an easy task. This is an area where small details can be very important and errors or mistakes can be very costly often resulting in an employer paying much more in workers comp premium than they need.
Remember… Workers Compensation Consultants is your FIRST RESOURCE for help with WORKERS COMPENSATION CLASSIFICATION PROBLEMS AND WORKERS COMP CODE PROBLEMS. We help you find out if your employees have been misclassified and help correct the mistake for you. If you need help with a WORKERS COMPENSATION CLASSIFICATION CODE problem contact our office, remember, we fix wrong work comp codes!
Topic Menu: Workers Compensation Codes and Classifications
- Class Code Information, Issues and Tools –
- Classification Code Errors and Mistakes –
- How to Correct Classification Code Problems –
Workers Compensation classification Codes can have a great impact on the premium you pay for your workers comp policy. So it’s important to understand the classification code system, how it functions and how it fits into the overall picture of your workers compensation insurance program.
Workers compensation codes are four digit numerical representations of specific work processes and job classifications as assigned to an employers business. Code classifications are detailed descriptions of the work being performed and are representative of the hazards found within the work process of a business.
Classification codes are complicated and proper assignment is critical to have the correct premium charged for a workers comp policy.
You’ll find there are about 700 different class codes currently being used by various state rating authorities. And with each of these codes comes a separate rate which factors into the premium calculation. With so many codes to choose from you can begin to see how a misclassification error can occur.
On this page of our website you’ll learn:
- About workers compensation codes;
- About the Workers compensation classification system;
- The effects of codes on rating a policy;
- How to properly determine a workers comp code;
- Who assigns the work comp codes to your policy;
I hope you find this section of our website helpful in answering questions you may have about class codes and how they work.
Making assumptions can get you in trouble! So don’t just assume your workers comp codes are correct. Don’t wait until a misclassification is discovered by an auditor and the correction shows up in the form of a large additional premium bill at audit time. Be proactive! Have a workers compensation code review performed today!
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