How Employee Classification Codes impact your Workers Compensation Premiums

How Employee Classification Codes impact your Workers Compensation Premiums

Double digit increases in workers compensation premiums in 2014 should provide you a good excuse to focus on your Employee Classification Codes.  As discussed on previous blogs the wrong code may cost you plenty.

Employee Classification Codes is a three or four digit code assigned by NCCI or a State's Workers Compensation Bureau.  Class codes help differentiate between the various job duties or "scope of work performed" by employees.  Each code is assigned to a specific function within an organization and denotes the risk the employee encounters each day.  An employee working with a machine is more at risk of getting hurt then an employee in the accounting department.  Therefore his assigned code requires a higher workers compensation premium.  

Example
A machine worker inside a sheet metal products company will have an employee classification code of 3066 at pay a rate of $3.93.

An employee working at the same company in the accounts payable area will have an employee classification code of 8810 at a pay rate of $0.20.  (note: both rates are loss cost rates).

If you have more then fifty employees its important you pay attention.  The rate differential is significant and costly if you have your employees coded incorrectly.

Unfortunately the Employee Classification Codes may be a bit more confusing.  A machine worker inside a sheet metal products company is not the same code as a machine worker inside a wood products company.  In fact there are over 700 employee classification codes in the system.  Each code requires a different payment.

The Employee Classification Codes are not complicated without reason.  Each code is assigned a risk classification and the dollar amount assigned to that code requires a contribution to the worker compensation fund.  Companies that employ people in riskier jobs contribute more dollars to the fund.  That is how the system works.

Companies can go to the NCCI.  The NCCI gathers data and analyzes industry trends.  Its a good place to find Employee Classification Codes.  You can also go to your State Workers Compensation Rating Bureau.  

Start with a check list of every employee and compare their codes.  You have the right to go back three years.

Professional firms are available to audit your Employee Classification Codes.  You should never pay an upfront fee.  A reputable firm will only charge you on a contingency basis, typically fifty-percent of the savings for the year they perform the audit and the recoveries they identify from the three prior years.  The reduction in rates for the subsequent years are yours to enjoy.

By Brian Kelly, SMP Consulting Group "the workers compensation audit specialist"
bkelly@smpconsultinggroup.com or our website smpconsultinggroup.com


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How Employee Classification code impact you workers comp premiums