Workers Compensation Class Codes

Workers compensation class codes are numerical codes assigned to various types of occupations and industries to determine the level of risk associated with each type of work. These codes are used by insurance companies and government agencies to categorize different types of jobs and determine the rates of workers compensation insurance premiums.

The codes take into account factors such as physical demands, use of hazardous materials, and the potential for accidents or injuries on the job.

For example, a construction worker might be assigned the class code 0020, while a bookkeeper might be assigned the code 8810.

The codes are necessary because they are used to mainly help distribute the overall cost of workers' compensation insurance. The cost is distributed amongst employers. For instance:

• Businesses in industries where workers are more likely to get sick or injured are likely to pay more than those who have fewer instances or risks associated with them. The only way this is determined is via NCCI class codes.
• Now, if NCCI codes didn't exist, all businesses will have to pay the same premium, which means that safer companies will end up subsidizing ones that have more risk involved with them. So, that wouldn't be fair.

The workers' compensation rates tend to use a couple of different variables. However, three factors are looked at when calculating them:

The Workers Comp Classification Code

Workers compensation class codes are a description of the type of work being performed. As mentioned previously, the code is mainly associated with the amount of risk, which later determines the compensation rates.

Insurers will use the corresponding class code when trying to figure out their workers' compensation rate. The class code is used to decide what base rate to apply for your particular line of work. The insurer later adjusts the rate mainly depending on the amount of risk associated with the business/industry average.

Payroll

The other factor that's considered is the size of your workforce and the annual payroll associated with it. You should report all payroll activity accurately since the amount declared will accurately reflect your workers' compensation insurance rates.

An insurance service provider will ask for an estimate of your annual payroll. That figure is then used to calculate the estimated premium.

It is important to note that both over and underestimating payroll will significantly impact your company's cash flow when there is a premium audit. Many insurance companies will use the audit to ensure that the estimated premium offered was accurate or if it needs to be adjusted.

We strongly advise that you keep close track on any changes to your payroll. Use the monthly estimate of your payroll for the most accurate figure. If there is new hiring or promotions, make sure to factor that into your final figure.

Experience Modification Factor

Insurers will also look through your history of claims. The insurance company uses an “experience modification factor,” also referred to as an “experience mod,” to find out the best rate to offer. The factor mainly considers the safety of your workplace and that of other similar businesses.

Take, for instance, that an experience mod of 1.0 is the industry average; however, if the figure is higher, that's considered a debit mod. In other words, your losses tend to be greater than what the industry average is, which means your workplace is less safe, and you pay a higher insurance premium as a result.

If the experience mode is below 1.0, that means your business is in the credit mod zone, where your losses are well below the average. Businesses in the credit mod zone enjoy lower premium rates.

Now it is essential to consider that a new business will not have a workers comp claim history. Generally, that will mean your business will need to pay more before being factored into the equation.

Until your business can establish a track record, you pay a higher rate. Once you do have a track record, the insurer will re-evaluate your premium, or you can urge them to.

The one way to improve or influence the experience mod is to promote and practice workplace safety. That will result in far fewer claims, and that means having a better chance of qualifying for a lower premium.

Every factor mentioned above goes into determining what you pay for workers' compensation insurance. Another point to make here is that the rate also varies from one state to the next.

It isn't uncommon for many small businesses to have several workers compensation class codes.

Take the example of a contractor who would have roofers working for them under the 5551 class code, and then they would have clerical staff under 8810.

However, roofers will face a greater risk of getting injured as compared to the clerical staff; there are insured under different workers comp class codes./p>

This helps insurers determine the overall risk associated with the business.

Below you can lookup NCCI workers comp class codes. Please note the term 'NOC' means 'Not Otherwise Classified'.

Find your workers compensation classification code by searching for your business type or four digit class code below: