A Guide to Workers’ Compensation Class Codes
As an employer, knowing what Workers’ Compensation class codes are and how they might impact your premiums is important. For a thorough understanding of class codes, employers can turn to our skilled brokers.
Workers’ Compensation class codes are numerical codes assigned to certain lines of work. They are very specific and are determined by either the National Council on Compensation Insurance (NCCI) or a state-specific classification system. Workers’ Compensation class codes are a crucial part of the equation for determining the cost of coverage, which is why knowing the code for your business is important. Our brokers can help you learn your current class code to avoid potential lapses in coverage or unnecessarily expensive Workers’ Compensation insurance premiums.
We are dedicated to helping employers get the Workers’ Compensation insurance they need to protect themselves, their employees, and their businesses. To learn more about how the Workers’ Compensation insurance brokers at NPN Brokers can assist your company, call us today at (866) 340-9120.
What Are Workers’ Compensation Class Codes?
In short, Workers’ Compensation class codes are used to separate specific types of work into categories. These numerical codes are determined by the risk levels of certain jobs and can help Workers’ Compensation insurance carriers evaluate a business’s policy premiums.
Each state’s Workers’ Compensation insurance system is complex, requiring certain types of companies to carry coverage, often based on industry or payroll. Class codes are a crucial part of the system and help categorize companies based on the specific type of work employees and companies perform.
Depending on your state’s classification system, there may be hundreds of class codes. Because each line of work presents different kinds of risks to insurers, these codes do not include a broad range of jobs and instead are extremely specific.
Class codes are often accompanied by a corresponding rate, which also helps determine the price of coverage. The rate attributed to a certain class code is based on job exposure risks. Rates may increase for businesses in high-risk industries, like construction and manufacturing.
Workers’ Compensation codes are essential to insurance systems, allowing carriers to more easily identify potentially high-risk companies and employees. Understanding this aspect of the system can be challenging for employers in need of coverage for their companies. To better comprehend how your company’s Workers’ Compensation class code may impact coverage costs, reach out to our Workers’ Compensation insurance brokers.
Which Workers’ Compensation Classification System Does Each State Use?
There are several Workers’ Compensation classification systems used across the country. The National Council on Compensation Insurance is the preferred system for most states. However, some states use their own classification system. Knowing which system is used in your state is important so that you can determine which class code applies to your business.
The National Council on Compensation Insurance Classification System
The National Council on Compensation Insurance is an independent entity that regularly assesses the risk levels of specific lines of work across various industries. The NCCI has a classification system that is used by many states to organize better and streamline their greater Workers’ Compensation insurance systems and coverage requirements. The following 34 states currently use guidance from the NCCI to determine class codes for Workers’ Compensation insurance purposes:
- New Hampshire
- New Mexico
- Rhode Island
- South Dakota
- West Virginia
If your business operates in one of the above states, the class code that applies to your company for Workers’ Compensation insurance purposes will be determined by the NCCI’s classification system. In addition to these states, the District of Columbia also refers to guidance from the NCCI to classify companies for Workers’ Compensation insurance purposes.
State-Specific Classification Systems
Of the 50 states in the country, 16 use various non-NCCI classification systems for Workers’ Compensation class codes. This means that the following states have their own agencies or bureaus that regularly assess particular types of work to determine the risk for insurers:
- New Jersey
- New York
- North Carolina
- North Dakota
Because state-specific classification systems do not use guidance from the National Council on Compensation Insurance, their class codes may differ substantially. If you have a company in a non-NCCI state, be sure to reach out to our Workers’ Compensation insurance brokers to learn your class code.
How Can You Learn the Workers’ Compensation Class Code for Your Business?
Learning the class code that applies to your business is crucial, especially if you require Workers’ Compensation insurance to comply with your state’s laws. Our brokers can determine which class code best aligns with your employees’ responsibilities according to your state’s classification system so that you can proceed with getting Workers’ Compensation insurance.
Often, it is not easy to determine a business’s Workers’ Compensation class code. Remember, class codes are ultra-specific, applying to very precise types of work. Because of this, multiple class codes might seem to apply to your company at first, only for you to learn that that is not the case when searching for Workers’ Compensation insurance. Knowing your class code is necessary to understand its corresponding rate and prepare yourself for the potential cost of Workers’ Compensation insurance in your state.
Some states, though referring to guidance from the NCCI, may make their own adjustments to Workers’ Compensation class codes. So, it is not always possible to go off of face value, even if your state tends to use the NCCI’s system. To identify the exact class code that applies to your business and its employees, turn to our experienced brokers. Our Workers’ Compensation insurance brokers can gather the necessary information about your employees’ responsibilities and your company’s operations and compare that information to the classification system used in your state.
Remember, whether your state uses the NCCI’s classification system or its own, there may be hundreds of class codes to sort through. Employers can avoid that administrative headache by turning to our Workers’ Compensation insurance brokers for help when learning their class codes.
How Do Workers’ Compensation Class Codes Impact the Cost of Premiums?
Determining your business’s proper Workers’ Compensation class code is important, as this numerical code may profoundly impact the cost of premiums. Employers can turn to our brokers to better understand this process and how it works.
Because Workers’ Compensation class codes inform carriers of a business’s risks to insure, these codes are a major factor in determining the cost of coverage. Remember, class codes often come with a corresponding rate. This rate generally dictates the minimum rate of premiums for a specific line of work, whether determined by the National Council on Compensation Insurance or a state-specific classification system.
The rate attributed to a class code is then plugged into an equation, which includes payroll numbers, a company’s history of workplace injuries, and age, among other risk factors. Carriers may then evaluate all of these factors together to determine a company’s Workers’ Compensation insurance quote.
When calculating premiums, the rate corresponding to a company’s Workers’ Compensation class code is one of the only concrete numbers used. The other factors are more subjective, based on prior workplace accidents and a company’s history. Because of this, Workers’ Compensation class codes are an essential part of the equation for policy pricing, meaning it is necessary to know your company’s current class code.
Can Your Business’s Workers’ Compensation Class Code Change?
As a company changes, so might its Workers’ Compensation class code. Staying up to date on this information is important, as a new class code might mean new, higher Workers’ Compensation insurance premiums in your state.
The National Council on Compensation Insurance and state-specific classification systems regularly reassess Workers’ Compensation class codes. Updated definitions and guidance might mean a new class code, regardless of whether or not your company has moved into a different industry. Suppose a serious change has occurred concerning your business’s operations. In that case, it is almost guaranteed that its class code has also changed. Should this happen, employers must inform their insurance carriers immediately, as failure to do so might be costly.
Insurance carriers might also alter a company’s class code during an audit. Generally, carriers perform audits annually to assess current premiums and policies. It is important to ensure that your carrier uses the correct class code, as failure to do so might result in unfairly high premiums for the coming year.
So, yes, your Workers’ Compensation class code can change. To avoid any issues with your coverage and its cost when class code changes occur, enlist help from our experienced Workers’ Compensation insurance brokers. Our brokers can help you determine if your class code is the same or different, allowing your company to maintain coverage despite a change in its Workers’ Compensation class code.
What Happens if You Use the Wrong Workers’ Compensation Class Code?
You may run into some issues if you use the wrong Workers’ Compensation class code when getting insurance. Most notably, employers that use the wrong class code may face lapses in coverage, which might result in fines and other penalties.
You might think that a simple mistake, such as wrongly classifying employees and using an incorrect Workers’ Compensation class code when getting coverage, would not have severe consequences. Unfortunately, that’s not the case.
Because class codes are so important when determining the cost of insurance and the risk to carriers, using the wrong numerical code can have negative results. When a carrier notices an incorrect class code, it might drop your policy, refuse coverage, or require that you restart the process. This can result in a lapse in coverage.
Since many states have Workers’ Compensation insurance requirements, a lapse in coverage might equate to non-compliance. This might mean that your company has to stop its operations entirely until it obtains Workers’ Compensation insurance or, worse, face financial penalties for non-compliance. You can avoid this misstep entirely by partnering with our Workers’ Compensation insurance brokers to determine the proper class code for your business and employees.
What if Your Company’s Workers’ Compensation Class Code is Unfavorable?
Apart from changing your company’s operations, there’s not much you can do to switch Workers’ Compensation class codes. Suppose your class code is unfavorable, meaning it marks your company at a higher risk for workplace accidents and comes with a higher corresponding rate. In that case, you might think expensive Workers’ Compensation insurance is unavoidable. With our skilled brokers by your side, that doesn’t have to be the case.
Workers’ Compensation class codes are certainly important when determining the cost of insurance. That said, class codes and their corresponding rates don’t totally set the price of coverage, generally just the minimum cost. Other, more subjective factors go into the equation, which might result in steeper premiums.
If your current Workers’ Compensation class code is unfavorable, don’t panic and don’t accept the first quote you receive. Instead, reach out to our Workers’ Compensation insurance brokers. Our brokers have relationships with carriers that don’t require contracts, audits, or deposits but instead offer transparent, flexible plans that may better suit your needs.
For example, despite having an unfavorable Workers’ Compensation class code and a high rate, you may be able to get a pay-as-you-go policy. Instead of basing premiums on annual payroll estimates, pay-as-you-go plans base prices on current payroll numbers. This enables employers to spend less on Workers’ Compensation insurance while keeping all necessary employees adequately covered.
So, you can still find affordable, comprehensive Workers’ Compensation insurance, despite having a less-than-ideal class code. In order to do so, employers need to know which carriers to turn to, which is why partnering with our experienced brokers is wise.
Call Our Workers’ Compensation Insurance Brokers Today
If you need Workers’ Compensation insurance, our brokers can help. To learn more about the small business Workers’ Compensation insurance brokers at NPN Brokers, call us today at (866) 340-9120.
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