The Recent Class Code Changes – A Further Look – J&L
The recent class code changes buzzed in the workers’ comp news for well over a month. Why am I writing another article on this subject? The class code changes convert into amounts of premium dollars > your company’s budget.
One does not have to be a premium auditor to appreciate how much budget can be expended with the change of code. The answer is a huge amount.
I had written a few articles concerning the changes over the last two weeks:
Two very recent articles –
California Adds 8871 Telecommuting Employee Class Code
Accounting For Paid Furloughed Employees
Comparing The Advisory Rates (called different names in different states)
Examining the advisory rates (pure premium rates, Loss Costs, etc.) should give one an indication of what each rate will comparatively cost your company. The most common classification code rates mentioned by me in the last few weeks are:
- 8810 Clerical Administrative – The Magical Mystery Code
- 8871 Telecommuting Employee
- 0012 Furloughed Employee – still paying their salaries or wages even though they are not currently working.
Most of the comparable rates exist behind paywalls. I will use our home state of North Carolina for comparison purposes. North Carolina’s Rate Bureau converted from NCCI to a completely independent bureau in ***.
The pure Loss Costs are per $100 of remuneration (modified payroll):
- 8810 – .07
- 8871 – .04
- 0012 – .00
Let us not go into the specifications of each code here. These three codes have been covered often in our set of articles. Use the search box.
If you have any questions on the class codes, please comment below or use the Contact Us page.
Five Caveat/Caution/Cart Before The Horse Considerations
Looking at those rates, one might think – Hey, 8871 is a cheaper code. Cheapest does not necessarily mean cheaper.
- Any class code that starts with 88 has very particular rules. Many unpublished Rating Bureau decisions shape those codes.
- The insurance carriers file Loss Cost Multipliers to deviate from the rate. No carrier HAS to accept those base rates. The carrier’s underwriters can easily and often do change the rates by filing a list of Loss Cost Multipliers.
- If you are in the Assigned Risk Pool, your rates will be different – much more expensive, use the Contact Us link above if you have questions concerning the Assigned Risk Rates.
- An important one that an 80-year-old premium auditor taught me many years ago. Say that many companies change some of their employee’s jobs to fit 8871. More accidents now happen to 8871 employees. The number of claims paid for the 8871 codes spikes and the accident rate for 8810 falls. The rating bureau actuaries adjust the rates to fit the claims experience. Now you have your employees in a rate code that increased 150%. Uh-oh.
- California has just now published the 8871 code. It will not count until 2021. The rates will have to be developed for a few years. The pure premium rates (Loss Costs) may vary greatly.
- Bonus – Each state is unto its own on the Advisory Rates. States such as California, New York, Colorado, and others may have different Advisory Rates. The very tech-heavy states may contain many telecommuting employees. The North Carolina codes above were used as an example for discussion.
Bottom Line On The Recent Class Code Changes
Know what you are doing when you start to reclassify employees in your company. The main time to understand the recent class code changes comes at premium audit time. The premium audit bill is usually your final bill for that policy year.
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A little clarity on how this will work for CA code 8871 that will take effect on Jan 1, 2021 is passed. A Rating Bureau (NCCI included) takes the rate from where the experience that they want to break out separately to code 8871.
Initially, CA will use the rate for code 8810 for the years from 2021 through 2024 before they actually have enough statistical data as a basis for the new rate for code 8871 in 2025 with its own experience (the 1st year is thrown out, and then the next 3 years of data 2022 to 2024 will be the statistical basis for the new rate in 2025).
Thus the real rates for 8871 in CA will not be out until 2025, until then it will be the same as code 8810 until then. With regards to my 80 years senior premium auditor noted in “Five Caveat item #4” advice. The key example of his advice is code 5606 Executive Supervisors that saw its rates rise nationally because employees were assigned to these codes in error that we’re actually doing construction work or supervision of construction.
Their claims noted these misclassifications by being injured with nail guns, falls from ladders, moving lumber, falls from roofs, etc. Clearly not code 5606 duties.
Thanks for your usual great comments.
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