Workers Comp Class Codes Quick Primer
The Workers Comp Class Codes are also known as Class Codes, Work Comp Codes, Codes, etc. Today, let us start with the definition of the Class Codes.
As I mentioned in my last post, the errors that we find have a common theme to them, which are Classification Codes. In laypersons terms, Classification Codes are how a Workers Comp carrier and the NCCI or your state rating bureau views your business operation. For instance, a trucking company may have a Classification Code of 7228 – which are short-haul truckers.
There is a very important point that needs to be made now. Your Classification Codes are not the same as your SIC codes. Your Work Comp Class Codes should not be based on your SIC codes. Quite often very small employers start out by doing a self-audit on their payroll and job types. When they grow, the Class Codes that are used year after year may have been based on the owner’s self-audit and description of the company.
This is not to say that the insured, NCCI, agent, or insurance carrier did anything wrong. Quite often, the Classification Codes are just copied from year to year by the agent. What if you change course in what your business is doing, or if the NCCI or your state rating bureau performs an in-person audit? I am not talking about the premium auditor that does a yearly payroll audit. Do your Classification Codes have quite a few NOC’s (Not Otherwise Classified)?
A great example is a firefighting company that we assisted that was classified as a water carrier. Why? They had Water in their name. As they were a small company, they were audited over the phone year after year. The firefighters now pay over 60% less in Workers’ Compensation premiums after we were able to convince the State Rating Bureau and their insurance carrier of the mistake. Who was to blame? This was just the natural Work Comp insurance process that went slightly awry.
The main area I wanted to cover here today, which should have been covered last Friday, is how to tell if your Classification Codes are wrong.
This is a very tough one, but here are some observations that we had while reviewing Workers Comp policies:
- You have NOC in your Classification Code
- The Classification Code is not what you do in your business.
- The NCCI or State Rating Bureau has never inspected your business
- Sometimes the Class Codes can be wrong if you have just been inspected (Catch 22)
- The NCCI, Insurance carrier or Insurance Company Payroll Auditor has abruptly changed your Classification Code
- Along with the abrupt change, you receive a very large Workers Comp premium bill
- You have two or more very distinct businesses that are being classified in one “umbrella” class code
- Your competitors are being classified differently
- The #1 way to know is that you or someone in your company has a gut feeling that your Class Code is wrong, or there is something that is wrong overall with your Workers Comp insurance policy – that is when we receive most of our calls and emails, and gut feelings are right about 80% – 90% of the time.
I will add to this list as time permits. Those are the ones that I can remember off the top of my head. I am on the road this week traveling to the West Virginia NCCI Conference.
West Virginia has come a long way from a monopolistic state for Workers Compensation to a fully open market. Brickstreet has been the interim monopolistic private carrier for the last two years and will be the carrier until July 1, 2008.
Brickstreet will be the carrier for some of the West Virginia state agencies until July 1, 2010.