The intricate world of workers’ compensation premiums can often seem confusing and overwhelming, particularly when it comes to understanding job classifications and how they impact premiums. A common misconception among employers is that premiums are based on the activity an employee performs most frequently. In reality, the job classification codes used to calculate these premiums pivot on the riskiest activity an employee undertakes. It’s a nuance that makes a world of difference and one that, when overlooked, can be financially burdensome.
The Gravity of Misclassification
Todd Thams, Founder of Mod Advisor, emphasizes, “Misclassification isn’t merely an administrative error. It can radically distort the premiums charged and influence claim outcomes.”
Delving into Class Code Determination
For most business the class codes used int their workers compensation policy are established by rating bureaus like the National Council on Compensation Insurance (NCCI). These codes serve as the blueprint for premium calculation and loss expectation. It’s startling to realize that the NCCI boasts over 700 such codes. And these codes, contrary to what some might think, zero in on specific job functions, not the overarching nature of the business. For instance, a clerical worker in a manufacturing facility isn’t classified under manufacturing risk but is distinguished under the clerical risk.
The mechanics are relatively simple: class codes group similar risk profiles, applying a rate that computes a premium commensurate with the risk associated with that specific classification. The resultant premium is a product of the classification rate and the total annual wages for that category.
Here’s where it gets tricky: if there’s a smorgasbord of risk exposures and employers aren’t meticulous with their record-keeping, employees default to the highest-rated class code. What’s more, it’s sometimes possible to assign multiple class codes to a single employee, contingent on certain criteria. If the payroll bifurcation is between roles like a driver and auto maintenance, it’s permissible. However, a division between clerical and maintenance roles isn’t.
The repercussions of these classifications are stark. Imagine a receptionist occasionally taking on driving duties. Instantly, her entire payroll gets shifted to the higher-rated driver class code.
The Golden Rule: Precision in Recordkeeping
The linchpin to potential cost savings, especially in high-risk sectors, lies in meticulous recordkeeping and percentages and general figures cannot be used. In the following example, we will refer to the construction industry. If an employee duties switch between framing and foundation pouring, their employer needs to maintain granular records that identify each day’s specific monetary exposure to these tasks. Estimates won’t cut it. Absolute precision is non-negotiable or your employee will be classified into the highest rated category.
Conclusion: Accurate Job Classification is Paramount
Accurate risk classification transcends premium audits. It’s foundational to both underwriting and rating. If you think you are misclassified, reach out to us at [email protected] and we’ll connect you with a trusted professional.