As a small business owner, you care about your workers. Protecting them on the job is one of your top priorities. That’s one reason why you should know your business’s correct workers’ compensation codes.
Workers’ compensation codes defined
Workers’ compensation codes are three- or four-digit codes that insurance companies use to estimate rates based on the risk level of work that employees are performing. Also known as class codes, these are maintained by the National Council on Compensation Insurance (NCCI)—an independent organization that gathers and analyzes data on workers’ compensation insurance.
The NCCI establishes and maintains workers’ comp codes for hundreds of thousands of businesses across the United States. Additionally, some states have rating bureaus that feature their own sets of workers’ compensation codes. This NCCI State Map shows which states have designated NCCI as their licensed rating and statistical organization.
Are you new to the world of workers’ compensation insurance? Read our small business owner’s guide to workers’ compensation to learn all the basics before you dive into comp codes.
How are workers’ compensation codes used?
Comp codes or class codes identify the type of work an employee does. Each code is used by insurers to estimate the hazards associated with particular tasks. For example, a clerical employee who works at a computer (i.e. class code 8810) is at less risk of injury than a carpenter who works on upper levels of buildings (i.e. class code 5403).
As there is less hazard associated with a desk job compared to a construction site job, it costs a company less to insure the clerical worker. In this case, class code 8810 is associated with a less expensive rate than class code 5403.
To understand which compensation rates are associated with which workers’ comp codes, you can access this helpful directory.
Do comp codes impact insurance costs?
Riskier jobs carry higher premiums. That’s why, workers’ class codes are an important part of the formula insurers use to estimate how much a company’s compensation insurance will cost.
There are four main factors for small business owners to consider when formulating the cost of their workers’ comp coverage:
Location – The state the employee is working in
Type of work – Otherwise known as the workers’ compensation code
Payroll – The size of the company’s overall workforce
Claims history – An experience modification factor
Each of the above factors will help determine your workers’ compensation insurance rate, which can range anywhere from $0.57 in Texas to $2.32 in Alaska per $100 of covered payroll. Learn more about the cost of workers’ comp insurance.
How do you find the correct comp codes for your employees?
As an employer, you have certain obligations under workers’ compensation laws in your state. You must accurately report the types of work duties your employees perform. Therefore, it is critical that you use an accurate workers’ compensation code to categorize each employee.
Improper or incomplete coding can be a costly mistake. Inaccuracies in coding will be discovered during annual insurance audits and business owners will be held responsible for making up the financial difference. Furthermore, deliberately falsifying comp codes is considered fraud and can result in fines, or even prison time.
Be sure to take the time to assign employees with the correct workers’ comp codes. Keep in mind that workers who have multiple roles may each need to have a split code. Also, remember that when an employee’s responsibilities change, their comp codes may need to be adjusted as well.
Not sure where to find the correct workers’ compensation code? Contact your state’s insurance department or review the list of each state’s workers’ comp requirements. Additionally, you may want to invest in the NCCI manual to find the most accurate comp codes for your employees.
I have my workers’ compensation codes. Now what?
After identifying workers’ comp codes for all of your employees, the next step is to determine where you will get your compensation insurance from. As a small business owner, you have a number of options.
In a few states (such as North Dakota, Ohio, Washington, and Wyoming), your only option is to get workers’ comp insurance from a state-funded program. In other states (such as California, New York, and Texas), you may purchase workers’ compensation coverage from private insurance providers, as well as from the state-funded program.
Many states also offer self-funded insurance. This means that, as the business owner, you would assume full risk and pay out of pocket for any workplace injuries. To be self-insured, however, you must submit an application, meet certain financial thresholds, and be approved by your state workers’ compensation board.
For most business owners, receiving comp insurance from an experienced provider is the best option. In addition to your workers’ compensation codes, you’ll also need the following when applying for a quote from an insurance provider:
- Name and description of your business
- Federal employer identification number (FEIN) or social security number (SSN)
- Business structure, such as limited liability company (LLC), corporation, or partnership
- The date that you want to begin coverage
- Business location(s)
- Number of location(s)
- Number of employees
- Annual payroll based on location and job type
- Workers’ comp claims history (also called loss experience)
Your workers’ compensation claims history is an important element, as it will tell the insurer how often your employees are claiming injury, how much risk is associated with each role, and how accurate your workers’ compensation codes are. Make sure you fully understand workers’ compensation claims when applying for your comp insurance.
It’s easy to apply for a quote online through a desktop computer or smartphone. You will be contacted by the provider through email or phone for any follow-up information that is needed after applying. Your insurance provider will then send your workers’ comp application to an underwriter.
If it is approved, you will receive your workers’ compensation policy estimate. From there, simply sign it to start the policy, gain coverage for your team, and protect your small business.
Workers’ compensation insurance made easy
If figuring out workers’ compensation insurance seems overwhelming, you’re not alone. Pie Insurance can help. We’ve taken the guesswork out of the process and we’re passionate about providing affordable workers’ comp insurance for small businesses across the country.
Get a workers’ compensation quote in three minutes through our website.
Thanks for reading! Please note that this content is intended for educational purposes only. As laws change regularly, you should refer to your state legislation and/or an advisor for specific legal counsel. If you’re a small business owner, learn more about workers’ compensation insurance or check your current rate in 3 minutes.