- About Us
- Personal Lines
- Commercial Lines
- Employee Benefits
- Small Business Insurance
- PEO Options
January 16th, 2018
Workers’ Compensation Insurance is meant to provide wage replacement and medical benefits for employees injured on the job, and most states require employers to carry this coverage. However, it is not one size fits all coverage, and understanding the importance of classification rates and how they may affect your annualized premium is often ignored.
With workers compensation, employees are categorized into classifications and those classifications are assigned a rate. Each rate code relates to different job duties and the amount of risk and type of hazard for each job or work environment. These individual classifications or codes have a predetermined value that insurance providers use as a basis to price workers compensation insurance.
It is not unusual for employers to have more than one code on their policy. For example, a roofing contractor would categorize roofers under one code, supervisors under another code and administrators or outside sales personnel under another. This contractor would also have separate class codes for roofers based on their hourly wage, with the higher wage earners being provided a lower rate and the lower wage earners being provided a higher rate. This shows that even within classifications there can be an additional rate hazard due to the sophistication of the position, as classes carry a separate rate due to the varied risk and hazard for each job.
The WHY behind proper classification
Attention must be paid to workers compensation class codes to verify that your employees are properly classified. Failure to do so could be quite costly to you as a business owner.
A comprehensive review of workers compensation classification codes is part of the service our professional advisors at Brown & Brown provide. More and more, this service returns significant results for our clients.
In one such review of a large national bakery, our broker found a discrepancy between the class codes on the policy and the class codes identified by an inspection report conducted by the Workers’ Compensation Insurance Rating Bureau (WCIRB).
During the inspection, it was determined that all commissary payrolls were classified as “cookie manufacturing” when half the payroll should have been classified as “ice cream manufacturing”. The workers’ compensation rate for “ice cream manufacturing” is half that of the “cookie manufacturing” code, so while the company was insured for its business operations, lumping all employees into the same classification meant they were paying a substantial amount of extra money.
The rules for assigning payroll to a class differ per industry. For example, in our restaurant review, employees were required to work exclusively in that class code and not carry over responsibilities. Had employees been tasked with cookie and ice cream manufacturing, they would have been required to be placed in the cookie rate class.
The bottom line is that a comprehensive review from an educated broker may mean the difference between paying a lower rate or overpaying on your workers’ compensation premium. It’s a simple step to ensure your employees are classified correctly.
Contact us today, for your complimentary review.