Workers' Compensation Insurance
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Workers Comp Codes - Classification System
Work Comp Standard Classification
The primary purpose of the workers' comp classification system helps serve two purposes.
1) It facilitates the accurate collection of data in order to price this line of insurance properly. Rates are developed from this data by Rating Bureaus (NCCI in most states) based on the payroll and losses submitted to them by insurance carriers. This ensures that insurers know how much they can expect to pay in losses for every $100 of payroll. In addition, it ensures employers pay workers' compensation premiums commensurate to the risk associated with their organizations so that the cost of workers' compensation insurance can be distributed as equitably as possible.
The workers' compensation Standard Classification System uses hundreds of industry workers comp codes to group employers whose businesses are similar. Each classification reflects the type of operations common to that group of employers (like workers comp code 9015; Building Or Property Management).
Classifications are assigned by to an employer's overall operations by identifying work comp class code that describe a business as a whole. This approach assumes that similar employers (e.g. plumbers) operate similarly and are exposed to similar risks.
2) It facilitates the development of an Experience Modification Rate for all employers. All of the claims, payroll and workers comp code data allow for the comparison of an individual business' loss experience to that of it's industry as a whole (within the state/s where it operates). This rate tells insurers how much better or worse than average an individual organization is at controlling it's workers comp claims. This allows for the application of either credits (discounts) or debits (additional premium) to a business' premiums.
Assignment By Analogy
Any business specifically described by a classification must be assigned to that classification. However, any business not specifically described by a classification must be assigned to the most analogous (most similar) classification.
In some instances, the operations of a business may not be explicitly described by a classification. In this case, the operations are assigned to the classification that is most analogous to the operations, from the standpoint of processes and hazards.
Assignment by Analogy Example
For example, there is no specific classification for dog walking services. However, Classification 8831(3), Kennels, is closely related in terms of processes and hazards. Therefore, companies engaged in dog walking services will generally be assigned, by analogy, to Classification 8831(3).
In addition to employees who perform basic business operations, nearly all businesses have clerical office workers, and many have outside salespersons. These activities, referred to as "Standard Exceptions," are a deviation from the one-business, one-classification rule. Since clerical office work and outside sales activities are commonly performed and carry a relatively low risk of injury, most businesses are permitted to use these "Standard Exception" classifications for the workers who conduct exclusively clerical or outside sales work.
Clerical Office Employees
Classification 8810, Clerical Office Employees, is applicable to workers who are engaged 100% in clerical activities with no additional duties. It is not permissible to divide a worker's payroll between Classification 8810 and any other classification.
Example — Assignable to 8810
An automobile repair facility employs a bookkeeper to maintain financial records. This employee processes invoices exclusively in the repair facility's back office. In this instance, the bookkeeper must be assigned to Classification 8810.
Example — Not Assignable to 8810
An automobile repair facility employs a bookkeeper to maintain financial records. This employee works primarily in the repair facility's back office, but occasionally must enter the garage to retrieve paperwork and status reports on specific jobs. In this instance, the bookkeeper cannot be assigned to Classification 8810 because this employee must occasionally enter the garage and is exposed to hazards outside those of a strictly clerical office worker.
Some industry classifications specifically include "Clerical Office Employees" in their description or phraseology. Typically, this is due to the difficulty in distinguishing between clerical and non-clerical activities for these classifications. The pure premium rates for these classifications are calculated including all of the clerical office payroll and loss data associated with these industries. When an industry classification specifically includes clerical office employees, it is not permissible to separately assign clerical office employees to Classification 8810, Clerical Office Employees, even when the clerical office employees work at a separate location.
Clerical Telecommuter Employees
Classification 8871, Clerical Telecommuter Employees, applies to employees who work more than 50% of their time at their home or other office space away from any location of their employer and devote the balance of their time to clerical office or drafting duties at any of their employer’s locations in areas that are separated from all other work places of the employer by buildings, floors, partitions, railings or counters and within which no work is performed other than clerical office or drafting duties.
Classification 8742, Salespersons – outside, applies to employees who spend 100% of their work time in the field, calling on customers, and performing activities to promote their employer's business. It also applies to employees who act as outside salespersons on a part-time basis provided they perform strictly clerical work when working at their employer's location. For this reason, Classification 8742 is usually not applicable to regional or zone managers, supervisors, and similar employees who may work in a non-clerical area while at one of their employer's facilities.
Watch the Standard Exception Classifications Webinar
In this webinar, you will learn about the classification requirements for Clerical Office Employees, Outside Salespersons, Clerical Telecommuter Employees, and the application of the standard exception classifications.
The Standard Classification System is designed so that all activities that are normally associated with a specific business are assigned to the one classification that most accurately describes the entire business. Stated another way, each classification generally applies to all of the "normal and usual" activities of a business, not just a single operation or the most hazardous activity. This rule is referred to as the Single Enterprise Rule. If your business, at one or more locations, consists of operations described by a single classification, your entire business will be assigned to that single classification and all payroll and loss data submitted by your insurance company to the WCIRB will be reported using that classification. It is important to remember that the pure premium rate for a classification represents the average risk of injury, not merely the highest risk, for the activities associated with a given classification.
Single Enterprise Example
An automobile body repair shop employs auto body repair technicians, painters, job estimators, auto detailers and shop clean-up personnel. Although the exposure to potential workplace injuries differs for each of these employees, all of these operations are normally associated with auto body repair shops. As a result, all of these employees are assigned to Classification 8393, Automobile or Truck Body Repairing and Painting – all employees including estimators, service writers and customer service representatives. Although a separate classification exists for auto body painting, Classification 9501(3), Painting – automobile or truck bodies, it does not apply in this case because the painters are employed by an auto body shop and are included in the body shop classification.
Under the Single Enterprise Rule, all employees engaged in activities that are "normal and usual" for an industry are covered by one classification. If a business has two or more operations that do not normally prevail in a business described by a single classification, then the Multiple Enterprises Rule may permit or require the assignment of multiple classifications to the operations. The Multiple Enterprises Rule is found in Part 3, Section III of the California Workers' Compensation Uniform Statistical Reporting Plan—1995.
Multiple Enterprises Rule Effective September 1, 2021:
If the employer’s business, conducted at one or more locations, consists of two or more distinct operations that do not normally prevail in the business described by a single classification, then the distinct operations shall be classified in accordance with the following rules:
If the distinct operations are Physically Separated in accordance with Section II, Rule 21, Physical Separation or Physically Separated, each distinct operation shall be separately classified.
The payroll for employees (exclusive of Miscellaneous Employees) who perform activities integral to separately classified operations shall be divided between or among the applicableclassifications, provided complete and accurate payroll records are maintained pursuant to Section V, Rule 3, Division of Single Employee’s Payroll.
The payroll of Miscellaneous Employees shall be classified pursuant to 3d below.
If two or more of the distinct operations are not Physically Separated, such operations shall be assigned to the highest-rated classification applicable to the distinct operations conducted in the common workspace.
The above paragraphs notwithstanding, division of payroll is permitted only if:
The operation is not described by any of the General Inclusions;
The division is not contrary to classification phraseology; and
The division is not contrary to any other provisions contained in this Plan.
Miscellaneous Employees do not engage in operations that are integral to each classifiable operation but perform operations in general support of more than one classifiable operation and cannot properly be classified in accordance with a single classification. Examples of Miscellaneous: Employees include but are not limited to supervisors, maintenance employees, power plant employees, laboratory researchers, security guards, shipping and receiving clerks, and yard employees.
Unless otherwise directed in this Plan, Miscellaneous Employees shall be assigned to the Governing Classification of the group of classifications to which their work pertains.
Miscellaneous employees perform ancillary functions, rather than direct labor, in support of more than one operation. If there are multiple classifications for a business, certain employees that cannot properly be classified within a specific classification are "miscellaneous employees" and will be assigned to the governing classification for their work. Examples of miscellaneous employees include maintenance workers, delivery drivers, supervisors, and shipping/receiving staff.
Miscellaneous Employees Example
If an awning and garment manufacturing employer qualifies for separate classifications and uses a single truck driver to pick up materials and deliver products in support of both operations, the driver is a miscellaneous employee and will be assigned to the governing classification. Unlike material cutters or sewers who perform direct labor in support of the manufacturing operations, the truck driver performs an ancillary function.
The governing classification is the classification that contains the largest amount of payroll excluding miscellaneous employees, clerical office employees, and outside salespersons.
There are certain activities that are specifically included in all classifications and may not be separately classified. These activities must be assigned to the classification that describes an employer's business or industry. These activities, referred to as General Inclusions, include the following:
Aircraft travel by employees, other than members of the flying crew
Commissaries i.e., cafeterias for your staff
Manufacturing of containers, such as bags, barrels, bottles, boxes, cans, cartons, or packing cases
Plant dispensaries i.e., first aid for staff
Maintenance or ordinary repair of the employer's buildings or equipment when performed by employees
Printing and lithography e.g., printing instruction sheets or product labels
Stamping, welding, drilling, and blasting e.g., in connection with other construction or manufacturing operations
Research laboratories e.g., new product research and development
Drivers and their helpers
General Inclusions Examples
If a brewery operator also manufactures bottles to bottle the beer that is produced, the bottle manufacturing operations must be included in Classification 2121, Breweries.
If a software development firm also prints its own instruction literature to be packaged and sold with the company's software, the printing operations must be included in Classification 8859(1), Computer Programming or Software Development.
Certain operations present a unique exposure to hazard that is not common or prevalent in most industries. Employees who are engaged in these activities must be assigned to a separate classification. These activities, referred to as General Exclusions, include the following:
Aircraft operation — all members of the flying crew e.g., pilots, navigators, etc.
New construction or alteration work (work that goes beyond facility maintenance or repair)
Day care services if provided by the employer primarily for use by its employees' dependents
General Exclusions Example
If a company operates a machine shop and a foundry to produce castings, the foundry activities would be assigned to the appropriate foundry classification, not to the machine shop classification. Most machine shops do not operate foundries, and operating a foundry is a unique exposure that requires a separate classification.
According to NCCI, Clerical office employees accounted for more than 60% of total payroll by industry group in 2018, and class code 8810 contained 47% of total payroll among classification codes. The difference between clerical office payroll by industry group and payroll classified directly into code 8810 is accounted for by the fact that some of the clerical office employees' payroll is written in class code 8871 Clerical Telecommuting and other classification codes that include clerical work in their description; like class code 8723 Insurance Companies Including Clerical & Salespersons.
Workers' compensation classification code 8810 is one of the "Standard Exceptions;" as is code 8742 and class code 8871. Class code 8810, as you know, is a assigned to clerical office employees. Since work comp code 8810 employees are considered to be in the safest work environment in most companies, the risk (and correspondingly rate/price) of workers compensation class code 8810 is very low.
Of course, it's safe to assume that most employers want to classify as many employees as possible in class code 8810. Within the industry, though, it's assumed that employers push the envelope and squeeze as many into the 8810 class code as possible including many who don't belong into this clerical office employee code. While I'm sure this goes on we find that the reverse is as frequently true:
Insurance companies frequently disallow class code 8810 in error.
As we know from 20 years performing premium audits for our clients, the application and removal of 8810 class code is frequently done in error leading to many audit disputes. So much confusion exists over the proper application of Classification Code 8810 that it was the #1 most reclassified code in 2020 according to NCCI.
Here's an example of actual 8810 Class Code dispute. This a common problem our clients encounter.
Below, in blue, is an actual exchange of messages between an insurance company auditor and a Cytron Group LLC client over the reclassification of a manager from class code 8810 to the client's governing classification.
This is an example of events similar to numerous others that happen every day. I posted about it on our blog because it's such a common occurrence for insurance companies to reclassify class code 8810 clerical office payroll at final audit (after the policy expired!) and send their clients nice additional premium bills. (By the way I'm changing client-specific details below to be overly certain nobody would know the parties involved).
Insurance company to their insured:
It appears that you have reported [Bob Smith's] payroll under the clerical class. The auditor moved his payroll to the Machinery Mfg. class because he has some shop exposure. This reclassification has generated an additional premium of $6,146. Please report his payroll under [new class code] going forward.
Insured To Insurance Company:
[Bob] is clerical only. He has no tools and does not work on any equipment. He spends nearly all his time in his office. He truly operates a phone, processes work orders, orders parts, maintains customer service, etc. The only time he’s in the shop is to check status of a job, give a mechanic a change order, etc. Period. Please change immediately.
Insurance company to their insured:
Managers and Supervisors would be assigned to the class code depending on the work that they are overseeing. So given that the employee is a shop manager and supervising shop employees [new class code] would be the proper code. I am referring to someone directly supervising/managing employees. In order to be classified 8810 you have to be separated from all of the operations 100% of the time.
And this is how formal disputes arise. What do you think? Is the insurance company auditor right?
Unfairness Of This Class Code 8810 Reclassification
There are at least 3 things fundamentally unfair about an insurance company reclassifying 8810 class code payroll at final audit like this:
Before writing the business the insurance company could have performed an preliminary test audit to determine proper classification. But, they didn't do it. The insurance company is the expert in insurance right; not the manufacturer? So, in my opinion this is the insurance company's error and it was the responsibility of the insurance company to make sure it knew what it is writing and how to properly classify the employees.
They waited until the policy expired to fix the (supposed) mistake in 8810 code payroll. Imagine buying a car to have the dealer contact you 12 months after the sale to inform you they undercharged you and are sending a bill.
They billed the insured for their mistake after the policy expired instead of trying to simply fix it on the renewal policy.
At this point you should know that this class code 8810 reclassification was the result of a phone audit (a big red flag) rather than a physical audit. And, this reclassification of the 8810 class code was triggered by the employee's title, Shop Manager, rather than any information received related to actual job duties.
This is not a simple issue as the insurance company auditor wanted her client to believe. In this case I replied with the following preliminary requests and questions:
I need you to request copies of auditor’s worksheets from the carrier.
Is the person in dispute an Executive Officer?
When in shop, what exactly is going on? What are his duties in the shop?
What is % of time in shop versus office?
Where is his office located?
How estimated on the policy?
Is there a formal Shop Manager job description in the employee file?
We performed a premium audit and successfully disputed the insurance company's assertion (interpretation) in this particular situation that employees classified as 8810 Clerical Office Employees must be separated 100% of the time from all operations.
And, the above dispute was over $6,000 for just one class code 8810 employee! We've worked with clients who have had entire departments reclassified away from the 8810 class code. Fortunately, we're able to help obtain corrections and refunds for most of the numerous organizations who call and email us about the proper classification of their clerical office employees.
Class Code 8810: Aggressive Interpretation Of The Definition
Here's another simple example from disputes we've seen with aggressive auditors. How would you classify the following "clerical" employees?
- They park in the lot in behind building
- Enter through the back door
- Walk through the shop to get to 100% separated offices in front of building
- Work exclusively in the office throughout the day
- Walk back through the shop to get to parking lot at end of the day
Believe it or not we've seen auditors reclassify these employees away from class code 8810 by claiming that the employees are not separated from the shop 100% throughout the day. In effect, leaving the employer with zero clerical office staff (from a work comp perspective).
Auditors, like the one mentioned above, would interpret the rules to force these employees in the governing class code rather than clercial 8810 and charge you more premium. "In order to be classified 8810 you have to be separated from all of the operations 100% of the time." But, the actual classification is not that straight forward as you can tell from the questions I had for my client (above).
The price difference can be astounding between class code 8810 and other classification codes. If you receive a premium audit report where any or a large number of employees have been reclassified to other codes, the premium auditor must explain in full detail why the class codes were changed during their audit.
You should find those explanations in the Auditor's Worksheets that the auditor produces during the audit. Even if you have no dispute, it's a good idea to request and review these after your audit. FYI, your broker will not do this for you. Even if a broker is a qualified payroll auditor (none are), your insurance company will not send your broker Auditor's Worksheets. They will only send them to you due to the confidential nature of the payroll information. You may then forward on to anyone whose consultation you engage, of course.
Even if the audit was a phone audit or completely performed using software, the auditor will (should) input explanations. You may find those in the miscellaneous notes section.
THE BOTTOM LINE: INSURANCE COMPANIES WILL REPRESENT CLASSIFICATION RULES RELATED TO THE 8810 CLASS CODE TO BE IRON CLAD WHEN IN FACT THEY'RE NOT.
There's much subjectivity based on a company's unique circumstances and there are numerous state exceptions.
If you determine that your insurance carrier reclassified employees who you believe should be class code 8810, you may want to initiate an audit dispute. Please call us to discuss your unique circumstances and potentially help your company, even if the reclassification was up to three years ago!. These issues will impact your work comp program costs indefinitely, so, let us know if you feel a reclassification away from 8810 was mistaken.
Also, it would be a good idea to take a look at our warning signs and reach out if you'd like assistance for any other reason.
Problems With The 8810 Class Code Designation For Work Comp
From a pricing perspective, of course, having a large part of your workforce classified under workers compensation code 8810 - clerical office employees - NOC is advantageous. It keeps costs down
8810 Class Code & Your Experience Modification Rate
However, if you suspect that any of your employees are misclassified as class code 8810 (to your benefit), you may not be saving as much as you think.
That's because your work comp class codes impact your your expected future losses and your Experience Modification Rate. Class code 8810 - Clerical Office Employees is very inexpensive because they so rarely have work comp claims. If they do, 8810 class code employees have very minor injuries that result in no lost time.
Since your Experience Modification Rate is a measurement of your actual losses vs your expected losses, a misapplied 8810 class code will reduce your Expected Losses and make your actual losses look worse by comparison. And, this will drive your Experience Modification Rate higher (let me know if you'd like a more detailed explanation of how this works).
If you think your insurance company is missing something (again, to your benefit) and you have employees classified as class code 8810 who shouldn't be, you might not be saving as much as you think due to an artificially high Experience Modification Rate. And, if you're in an industry where it's common practice to use EMRs for qualifying new business, you might be losing out on the revenue side of the equation too.
What Does "NOC" Mean In Code 8810 Clerical Office Employees NOC
Not Otherwise Classified.
This indicates that the class code is not specific. There are numerous examples of classification codes that include NOC in their descriptions in addition to the 8810 class code. For example, here are 2 work comp classification codes from the retail industry:
Classification Code 8033 Store - Meat, Grocery And Provision - Combined - Retail NOC
Classification Code 8006 Store - Grocery - Retail
This simply means that the insurance company underwriter or premium auditor could not place your business or employees in any other work comp classification codes that are more specific to your industry.
Classification Codes That Include Clerical Office Employees
One reason why you may not qualify for Class Code 8810 is that your current work comp class code includes clerical office work in it's description.
For example, businesses classified as class code 9012 Building Or Property Management, class code 8723 Insurance Companies, class code 8832 Physician, etc. contain clerical office employees in their descriptions.
These class codes include clerical work as part of their principal business and specify this in their respective classification descriptions. These classification codes can create confusion for employers with respect to workers compensation class code 8810 and proper classification.
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