One of the most misunderstood and difficult parts of setting up a workers compensation policy is classifying the type of work being done by each employee. With over 700 classifications there are a lot to choose from and some of the wording on the classification descriptions can be misleading. Class codes are one of the most important parts of the workers compensation policy, as they are one of the two driving factors in price/premium. The other factor being amount of payroll for your employees. If the employees are not classified properly, there is a chance that upon audit for a significant difference in rate between the classifications. This can cause either a large increase in premium owed, or meaning that too much has been paid into the policy. I wanted to go over my experiences with some classifications that I see commonly misused to hopefully help you with your search for the proper class code.
5606 – Contractor – Project Manager – Construction Executive – Construction Manager or Construction Superintendent.
This classification would have to be one of the most misused of all 700 codes. This classification is designed for an employee who is in charge of the construction project but does not take part in any of the physical work whatsoever. They also cannot have direct contact with the employees doing the work; they must be talking with the foreman who then will line out the work to be done by the employees on the job site. This position is mostly work being done in the office, but occasionally will include going to the job sites to check in with the foreman’s.
5437- Carpentry – Installation of Cabinets or Interior Trim.
This classification code is commonly mis-classified when it comes to general contractors. General contractors cannot separate out this classification from other work being done. Even if the other work was done weeks prior, the contractor still cannot use this classification. It will default to the classification that has the highest rate for the work done at the job site. This classification is designed to be used by an artisan (specialty) contractor, someone who’s scope of work is only doing the installation of cabinets or trim inside of the structure and is not doing any other type of work on the building. It is a very specific classification and the rate for this type of work is typically much less than all the other construction classifications, this means that if you are using this classification and it is incorrect you will have a very large audit balance that will be due at the end of the term.
8810 – Clerical Office Employees NOC
Clerical employees are typically one of the least expensive classifications; this is for a good reason as the chances of someone sitting behind a computer being injured is very small. Since it is the least expensive classification, it is common that business owners will try to classify as many of their employees as they possibly can in an attempt to reduce cost. The biggest requirement for this classification is that there has to be physical separation of the clerical employee from the other work being done at the location, this can be a wall or even a reception desk. The other caveat of this classification is that you typically cannot use this in conjunction with any other classifications, they refer to this as a standard exception class code meaning the employee cannot be doing any other class of work. You cannot have an employee who is classified as 5437 (trim carpenter) and then coming back into the office and assigning payroll to 8810 for them taking calls and working at their desk. Some states may have certain instances where they allow this code to be split. Missouri is one such state who will allow an owner to assign 10% of their payroll to the 8810 class and the remaining to the governing code. It is important to check the regulations to make sure.
Standard Exception Class Codes
As referred to with the clerical classification (8810) they cannot be used in conjunction with any other classification. There are three of these classifications that are commonly misused in this manner, 8742 (outside sales), 8810 (clerical), 7380 (delivery). Make sure that if you are using these classifications that the employee is not participating in any other aspect of work being done in the company that should be classified elsewhere.
The biggest take away from this is that you should verify all the classifications the agent is using on your policy. It is important to talk through the class codes with the agent and make sure they are being properly assigned. You can always look up class codes online as a consumer through several different sites and most agents will be more than happy to explain why they used a particular classification. Classifications can sometimes be very tricky any it can even vary by how a particular insurance carrier views the work being done. A little research and questioning to make sure things are set up properly could end up saving you a lot of hassle and money upon the audit of the policy.