Learn how workers’ compensation codes are assigned to job titles by insurance companies.
Workers’ comp codes help determine what you pay for for small business insurance. They’re important, yet many small business owners have never heard of them.
To make sure you pay just the right amount for your insurance coverage, you update your workers’ compensation information whenever you make changes to employees. Class codes in workers’ comp are a big part of this reporting for business owners. And class codes can make a difference to your bottom line.
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Workers’ compensation class codes are three- to four-digit numbers insurance companies assign to different job titles. These numeric codes help insurance companies determine workers’ compensation insurance costs for different businesses based on the risks associated with each type of job at a business.
In most states, insurance companies get these codes from the National Council on Compensation Insurance (NCCI). The NCCI is a nonprofit national rating bureau for workers’ compensation insurance. While funded mainly by insurers, the NCCI provides its class codes based on industry data and trends they’ve analyzed independently.
The NCCI produces a comprehensive list of about 700 codes used for workers’ compensation in most states. It also makes judgment calls on the proper use of classification codes and can perform an audit if misuse of codes is suspected.
Codes are shared across occupations if the NCCI determines they share the same level of risk. Code 8810, for example, is used to classify air traffic controllers, computer programmers, museum curators, newspaper publishers, and more.
As you might expect in an insurance classification system, occupations with more risk usually have higher workers’ compensation costs.
In some cases, occupations in the same industry with different levels of risk have different codes. For example, in the construction industry, carpentry has a different code than plumbers. Or if the types of work overlap, some, such as a florist and landscape gardener who works with flowers and plants, have different codes and workers’ comp rates.
Thirty-five states use NCCI class codes to determine workers’ comp insurance rates. The NCCI provides an online tool for insurance agents and underwriters to look up and determine codes.
The rest of the states operate with independent or monopolistic state codes, meaning private insurance companies cannot sell workers’ compensation insurance, so no rating bureau exists.
Independent state codes are just what they sound like — the state has its own independent rating bureau. Employers in the following states can expect slightly different rules and compensation codes than those found in NCCI states:
In monopolistic states, employers must purchase coverage from a government insurance fund:
Class codes affect the workers’ compensation rates you pay. This is why businesses with more than one type of employee often use multiple codes.
For example, a small construction company may use separate codes for their employees:
Employees performing tasks with different associated risks are classified differently on your workers’ compensation policy. Because a clerical employee likely has less risk associated with their job than a general construction employee, you would pay less for their coverage.
Occasionally, you may see the abbreviation NOC or “not otherwise classified” on your workers’ comp policy. It means that the insurance underwriter or auditor could not place your business in a more specific classification code so they assign it a more general code.
An accurate count of employees and clearly defining their duties with your insurance company is crucial. It ensures you’re assigned the correct workers’ comp class codes for your workers. This helps you avoid overpaying for insurance you don’t need and protects your business from potential discrepancies during a workers’ compensation audit.
Let’s say you misclassify a construction worker (higher-risk job) as a clerical worker (lower-risk job) to try and spend less on workers’ comp coverage.
If an incorrect NCCI classification with a lower cost is assigned to your workers, auditors will likely catch the mistake (state regulators require annual audits in most states).
If the cost has been underestimated, you will pay the difference. If auditors find willful misclassification, you might be responsible for fines or other penalties, depending on your state.
Another possible consequence of miscoding is that your insurer could refuse to pay for injuries sustained during work duties that are clearly outside the scope of the classification for that employee. This will leave you liable for the full costs.
Workers’ compensation class codes help determine your risk and correctly price your workers’ compensation insurance. By not having to assess the risk of every job, the NCCI and state rating bureaus ensure insurance providers are acting fairly and giving you the coverage you need.
NEXT specializes in small business insurance. And we help business owners in 1,300+ professions get the right workers’ comp insurance for their business.
You can get a quote, customize your options and access your certificate of insurance online immediately — all in about 10 minutes. Manage your policy 24/7 via web or mobile app.
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Kim Mercado is a content editor at NEXT. She writes and edits content for small business owners, and enjoys helping entrepreneurs solve their business challenges and learn about insurance. Kim has contributed to Salesforce, Samsara and Google.
You can find Kim trying new recipes and cheering the 49ers.
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