Understanding workers compensation class codes is essential in managing your insurance premiums. Every employer should know what they mean and how they impact coverage and costs. Class codes impact a business in several ways.
What is a class code?
Classification codes, also called class codes, are used in estimate work comp insurance rates for your business. Every employment role is assigned a specific code. This code is based on the kind of work and risk level associated with that specific role.
The National Council on Compensation Insurance (NCCI) standardizes class codes. They determine the experience modification factor (e-mod) based on the business’s previous work comp claims history.
How does a class code impact my business?
Class codes assigned to your business significantly impact your insurance premiums. Insurance companies use the data from each code to determine the rates. Further, it’s important to note that industries that carry more risk typically have higher insurance costs. This is due to a higher frequency of workplace injuries and claims they experience.
Insurers determine the rates for different class codes based on the cost per $100 in payroll. This calculation helps businesses know how much they need to pay in premiums annually.
Why is assigning the right class code to my business important?
Classifying employees correctly directly impacts your premium. Your insurer estimates your premium based on your company’s payroll per classification code. This is done by considering factors such as:
- Industry
- The type of products or services you provide
- Tasks performed by your workforce
- Any contractors or subcontractors who require coverage
To ensure a fair assessment, your insurer needs accurate information about all employees, including their employment status. Some businesses may qualify for separate class codes. For example, a construction company may have multiple employees in different roles: clerical, machinists, carpenters, and subcontractors.
At the end of the policy year, insurers may adjust your final rate to reconcile any discrepancies between projected and actual payroll.
What happens if my employees aren’t classified correctly?
When receiving work comp insurance quotes, identifying the right class code is vital. All employers must comply with their state’s workers’ comp class codes and requirements. Not adhering to these standards may result in overpayment, fines, or legal repercussions.
Incorrect classification may also affect your bottom line. If an employee is classified incorrectly, then your business may owe more than originally quoted during an audit.
Navigating the complexities of workers compensation class codes can be a challenging task. However, MEM has a team of experts that can help you along the way. Businesses can work directly with one of our agent partners to ensure accurate class codes and receive the appropriate rates tailored to their specific needs.