Depending on your industry, your workers’ comp insurance might be a significant expense. In my last article, How to Control Your Workers’ Comp Premiums, I mentioned the need to pay attention to your workers’ comp classification codes. Because this is such an important issue, I’m going to explore it in depth here.
What Are Workers’ Comp Insurance Classification Codes?
Like any form of insurance, premiums for workers’ compensation insurance are based on risk factors. One of these is the likelihood of injury, which is determined based on the type of work performed. For example, a rodeo clown is more likely to get injured than a telephone operator. The classification codes, which in California are set by the Workers’ Compensation Insurance Rating Bureau (WCIRB), reflect this.
How Are Your Company’s Classification Codes Determined?
A representative of the WCRIB will periodically visit your company and do an inspection and audit to determine your classification codes.
How Do My Classification Codes Affect My Premiums?
There is a standard workers’ comp premium rate associated with each classification code. Base premiums are calculated by multiplying payroll x classification code x experience mod rate.
As part of this calculation you must report your payroll in each of your assigned classification codes. To keep your premiums as low as possible, be sure to:
• Ensure your assigned codes are correct – There might be two codes that are very similar, but one will cost you 10% more than the other. Sometimes employees are misclassified in the first place. Other times employees are misclassified because things have changed over time. For example, if you have purchased machinery that reduces the risk of what was being done manually in the past, the classification code might change.
• Report your payroll accurately – Avoid typos and mistakes.
• Project your payroll accurately – Each year your insurance company will require a projection of payroll for the upcoming year, listed by classification code. Your premium will be based on this projection, subject to adjustment after an audit at year-end.
How Do I Get My Workers’ Comp Classification Codes Changed?
If your codes need to be adjusted, contact the WCIRB and complain loudly enough to convince them to come back out and take another look at your operation. Your insurance broker may be able to help you with this.
Of course, if you need help getting your company’s costs under control, give me a call. As your part-time CFO, I’m here for you.