Do you know your workers' comp insurance class codes?
Chances are, you use workers’ comp Code 8810.
Code 8810 is the most frequently used class code.
It is also the most misused.
According to the National Council on Compensation Insurance (NCCI), Code 8810 holds the top spot in NCCI’s list of the top reclassified codes. That means that Code 8810 is the most misused code, and many businesses using it find themselves facing a classification change during an audit.
Read on to find out if any of your employees are eligible to be classified under Code 8810 - and if yes - how to use the classification to your advantage - without misusing it.
But first, let’s brush up on what a class code is…
To understand the advantage of standard exception codes like 8810, it’s helpful to first understand how workers' comp class codes work in the real world.
There is a big publicly accessible list, managed by the NCCI, that has every job role, industry and business type. It assigns an arbitrary number to each role. That number is called the class code.
Class codes are 4 digits long and can vary from state to state. Think of it like a barcode to easily reference the information and risk related to that job role.
Everyone doing the same job role in that state will have the same class code. For example, all electricians would be class code 5190.
Every workers’ comp insurance policy is usually classified with one class code, determined by a business’s main operation. This is called the "governing class code."
Even if a business engages in multiple activities, it is only allowed to have a single governing class code. This is to make sure that their policy is adequately covering their level of risk for injury.
For example, let’s discuss a landscaping business.
Class code 0042 is used for people who install flower beds, turf or similar work.
Class code 9102 is used for lawn mowing and basic maintenance.
If a company did both types of work, they would not use both class codes. Instead, everything would be grouped under the more expensive or risky code of 0042 since that will also cover the less risky work. All company employees, regardless of which duties they perform, would be classified under governing class code 0042.
Note: Construction businesses are an exception; they can divide their payroll across multiple codes with accurate record-keeping.
According to the NCCI, Code 8810 is designated for "Clerical Office Employee NOC (Not Otherwise Classified)." It’s generally used for people working in roles such as administrative assistants, data entry clerks, and receptionists.
Unlike the example we used before, where all the landscapers were grouped under one code, Clerical Office Employees can be broken out into their own group in most businesses.
This is because it is one of the few “standard exception codes”. Virtually every business, regardless of what the company primarily does, will have at least one employee in this role.
Standard exception codes allow businesses to split their payroll into separate class codes based on each employee’s role. Because these are usually lower in risk, businesses can often get cheaper rates for them.
Other standard exception codes include:
Not surprisingly, most business owners try to get their clerical staff classified as 8810. According to the NCCI, in 2020, 30% of all payroll was classified under this category.
The national median rate for Code 8810 is only $.35 per $100 of payroll. That translates to just $350 for every $100,000 of payroll! Definitely an attractive option for businesses looking to minimize workers' comp costs.
To qualify for this code, employees must be engaged in clerical work only. This designation means that they can’t have any part in operations or sales.
Also, they must also work in a separate area dedicated solely to clerical activities. If they routinely walk into the operations area, or take clients out to lunch, they wouldn’t be eligible for this code.
While 8810 offers a great advantage to businesses, there are certain "exceptions to the exception," so to speak. According to NCCI guidelines, 8810 falls under the “NOC - Not Otherwise Classified” category. That means that if the governing class code mentions clerical workers in its description, the workers cannot be split out under Code 8810.
Here are two examples to illustrate:
Notice that clerical staff are included in the class code description. Therefore, they cannot have their clerical employees classified under Code 8810.
It's important to understand that class code allocations may not always seem intuitive. Still, it is important to follow the guidelines to avoid “reclassifications” at audit - which usually come along with big bills, and possibly fines.
These two codes—8810 and 8742—are the exceptions most commonly used. This frequently leads to confusion since both are separated out of the governing class code. The distinguishing factor between them lies in the employee's responsibilities.
If an individual primarily performs clerical or administrative tasks in an office setting, they would be categorized under Code 8810. On the other hand, if the employee is often on the road for client meetings, they would fall under Code 8742.
As mentioned, abusing Code 8810 comes with consequences. You could face fines, back pay, and a large bill when the misclassification is found at audit.
Also, misusing Code 8810 can have a negative impact on your Experience Modification Factor, commonly known as ExMod.
Since your ExMod is a comparison of your claims history to others in the same industry, a severe injury to an employee classified under Code 8810 can skew your ExMod.
To illustrate: Imagine you run a logging company and an employee classified under "8810" cuts off a thumb. This is a far cry from the type of injuries usually associated with clerical work. The result? Your Ex-Mod is likely to skyrocket.
Note: Ex-mod is a complex equation insurance companies use to calculate your workers' comp rate along with the industry and your state. For a more detailed explanation, refer to our Ex-mod term explanation page.
Businesses love to have their whole business classified under this code - since it often results in lower premiums. However, carriers may be hesitant to offer policies because the low premiums may not adequately balance out the risks involved. The carrier will often apply a “minimum premium” to make the policy viable.
Also, there are General Contractors who operate as "paper GCs." They subcontract all their work, leaving only one or two employees who could be categorized under Code 8810 as clerical staff. Many times these businesses need to resort to a Professional Employer Organization (PEO) or a state fund to get covered.
If your business engages solely in operations but may eventually hire clerical staff, a proactive insurance agent may include an "IF ANY" clause in your policy. This clause ensures that “IF ANY” future hires are clerical, they will be covered under Code 8810 - and not under your business’s governing code - saving you potentially significant costs in the long run.
Workers' comp codes can be extremely nuanced. At Kickstand, our experienced agents can help you navigate these complexities, ensuring that your business benefits from the lowest possible rates with the most comprehensive coverage. Call us at 866-338-6388 or fill out an instant quote.