Workers’ Comp Class Codes
Workers’ Comp Class Codes are a four digit number that is used like a barcode to reference different categories of job roles. Insurance companies use these codes to reference risk information and determine workers’ compensation costs.
What are Workers’ Comp Class Codes?
Class codes are a four digit number that is used as an easy reference for different job roles and are paired with a description of the type of work employees can do. These codes help identify and classify each specific job type.
Where do workers’ comp class codes come from?
There is a publicly accessible list that assigns an arbitrary number to every job role, industry and business type. This number is called a class code, which is typically 4 digits long and can vary from state to state. Think of it like a barcode that easily references the information related to that job role. The list is created and maintained by the National Council on Compensation Insurance (NCCI), an independent advisory organization for 34 states across the country.
For example, a landscaping company will have employees with who have different job roles, each assigned a specific class code. Clerical staff, such as secretaries and billing department employees, are grouped under the clerical class code 8810. Gardeners who perform basic lawn care and leaf blowing are classified under code 9102. However, if these gardeners also do tree removal, they would be classified under a different number, 6217.
Why does it matter exactly which codes are chosen for your business?
For every industry, The National Council on Compensation Insurance (NCCI) analyzes how likely the employees are to get hurt and then assigns a rate ($ per every $100 of payroll) based on how risky the work is. Each class code number has a corresponding rate. The rate is what the insurance company uses to determine how much the policy will cost. (Hint: riskier jobs have more expensive policies)
Choosing the correct codes is important because it provides a quick way for the underwriter to understand your operations and accurately assess the risks involved. This helps them to underwrite your policy correctly.
To continue the example from before, the secretary and billing department staff, classified as clerical, are least likely to hurt themselves so they have quite a low rate.
The typical gardener, handling sharp equipment and doing manual labor is more likely to get hurt and will have a higher rate.
A gardener who cuts down trees is even more likely to severely hurt himself since he is climbing many feet off the ground and dealing with huge trees, so he has an even higher rate
How do I find my Workers' Comp Class Code?
Workers’ compensation class codes vary from state to state, but most areas of the country use the NCCI’s classification system to determine how to rate a policy and figure out how much premium should be based on the employer’s class code and its rate.
While you can do a quick Google search to determine the average workers' compensation rate for a specific class code, the best way to find your workers' comp class code is to ask your insurance agent.
Don't worry if you aren't sure what your class code is. That's what we're here for! Insurance agents are knowledgeable about workers' compensation insurance and the class code system and can help you find the correct code for your business.
Having the correct class code for your business is important, as it affects the calculation of your workers' comp insurance premiums. Your insurance agent can help ensure that you have the correct code, which can help you avoid overpaying for insurance or facing a coverage gap in the event of a workplace injury or illness.
What is a Governing Class Code for Workers' Compensation?
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.
It's important to choose the most specific code available to ensure accurate classification and proper insurance coverage.
For example, let's say you run a trucking company. If your business is just general trucking, you would use a general trucking class code. However, if you have a contract with FedEx, there's a more specific class code for FedEx trucking. In this case, you should use the specific FedEx trucking code rather than a general trucking code. This ensures that your operations are accurately represented, and you get the correct insurance rate.
Different industries have varying levels of specificity in their class codes. Always aim to use the most specific code that matches your business operations to avoid misclassification and potential issues with your insurance policy.
Let’s take a look at a landscaping business to see how class codes work.
Class code 0042 is for people who install flower beds, turf or do similar work.
Class code 9102 is for lawn mowing and basic maintenance.
If a company does both types of work, they wouldn’t use both class codes. Instead, they would use the more expensive or risky code, which is 0042. This is because 0042 covers the riskier tasks and also includes the less risky ones. So, all employees, no matter what specific duties they perform, would be classified under the higher-risk class code 0042.
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Kickstand Note:
In industries like construction, it’s possible to apply multiple class codes as long as payrolls are kept separate. For example, a construction business can have several class codes on a single policy. Designated teams and payrolls must be kept very separate to maintain these classifications.
Can a Small Business have more than one Class Code?
A small business can only have one main class code, or governing class code, which represents the primary type of work your business does.
However, there are special rules that allow you to use additional codes for certain lower-risk roles that are common across all industries. These are called standard exception codes.
Here are some examples:
- 8810 - Clerical (office work)
- 8742 - Salespeople
- 8871 - Clerical Telecommuter Employees
- 7830 - Drivers, Chauffeurs, and Their Helpers
These roles are generally considered less risky, and using these class codes can often save the employer money. However, it's important to be strict about these exceptions. Employees in these roles should only perform tasks that match their code.
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Why is it important for workers’ compensation class codes to be accurate?
Here’s why accuracy matters:
- Correct Insurance Costs: Accurate class codes ensure you pay the right amount for your workers' comp insurance. If the codes are wrong, you might pay too much or too little.
- Proper Coverage: Using the right class codes ensures your insurance covers the specific risks of your business. Incorrect codes might leave you without enough coverage if an employee gets hurt.
- Avoiding Penalties: If your insurer audits your account and finds you used “safer” codes than you should have, they could retroactively bill you for up to three years of additional premiums. Multiple mistakes might even lead to policy cancellation.
- Fair Claims Processing: Correct codes mean claims are handled fairly and promptly. Incorrect codes can cause delays or disputes in processing claims.
- Future Insurance Applications: If your policy gets canceled due to incorrect codes, future insurers might deny your application or charge higher rates when you apply for a policy.
Curious how much a policy would cost for your business?
Now that you understand what workers comp class codes are, how they get assigned to different job roles and how their corresponding rates work, it’s time to find out what your policy would cost.
You can use our no-risk, instant quote generator to find out what the workers compensation premium would be for your business. You don’t even have to know your class codes, just enter every type of job role in your business and the software will do the rest for you.
Learn more about how your workers comp premium is calculated or start an instant quote and we'll figure out your class code for you!
Mordechai Kamenetsky, co-founder and lead agent of Kickstand, is recognized as an expert in workers' compensation. He is passionate about helping small businesses manage risks and lower their workers' comp costs. In his articles, he educates readers and clients on the intricacies of workers' comp insurance.
As a small business owner, you can get cheap workers' comp insurance by correctly classifying your workers and lowering your experience modification rate. These strategies, among others, can lead to significant savings. Learn how to reduce your workers' comp costs while still protecting your business.
