As business owners, you want to get the most accurate—and the most competitive—workers’ compensation rates. And one factor that will, in part, determine those workers’ compensation insurance rates? Workers’ comp class codes.
Workers’ comp class codes are an integral part of the workers' comp system—and proper classification is a must if you want to secure the most accurate and competitive rates for your small business.
But what, exactly, are workers’ compensation class codes? How are they used? And how do you track down the right classification code for your state and your workers—and ensure that you’re getting the right workers’ compensation insurance at the right price?
What Are Workers’ Comp Class Codes—and What Are They Used for?
First things first. What, exactly, are workers’ compensation class codes—and what are they used for?
Workers’ comp class codes are numerical codes (either three or four digits) that are assigned to different types of work. Insurance companies will use a class code to determine the amount of risk associated with a specific type of work—and then use that risk assessment to determine the base rate for workers’ compensation insurance.
For example, let’s say you operate a business in California and you hire an outside sales person, whose job consists of working out in the field, making sales calls to potential customers and generating new business for your company. If you were applying for workers’ comp insurance, you would use the class code 8742—the class code for “salespersons - outside”. That class code tells the insurance company what your new employee is responsible for and what level of risk is associated with their role—and from there, they can assign the appropriate workers’ comp rate.
What Does WC Code Mean?
If you’ve been looking into workers’ comp insurance, you might have seen the term “WC code” and wondered what, exactly, does that mean—and how (if at all) does it relate to class codes?
Sometimes, people abbreviate workers’ comp class code to WC code—so WC code is just another way of saying workers’ comp class code.
Why Are Class Codes Important?
The workers’ compensation classification system is important because it is one of the determining factors insurance agents use to determine workers’ compensation insurance rates.
As mentioned, when an insurance agent sees a workers’ comp class code, it tells them how much risk is associated with the job—and, generally speaking, the higher the risk, the higher the workers’ comp insurance premium. So, having an accurate class code for all the employees in your business will ensure that you’re getting accurate, competitive rates for workers’ comp insurance—and you aren’t over (or under) paying for your insurance.
For example, answering phones carries less risk than welding, since you’re less likely to injury yourself answering phones than you are fusing metal—and, as such, less likely to need to file a workers’ comp claim. So, the insurance rates for a receptionist are generally going to be lower than a welder. The workers’ comp class code gives your insurer insight into the risk level of each role; that way, they can assign the correct rates. If your code is inaccurate, they don’t have the information they need to provide accurate pricing for workers’ comp insurance—and you could find yourself with a rate that’s too high (for example, if your receptionist position was coded as a welder) or too low (if your welder position was coded as a receptionist).
If your rates end up being too high, you will get a refund at the end of the policy—but that’s money you could have spent throughout the year on your business. And if your rates are too low? Then you’ll find yourself dealing with a large, unexpected audit bill from the insurance company—which can put your business in serious financial jeopardy.
Does the workers’ comp process sound stressful? With Hourly, you don’t have to worry about paying too much or too little for your workers’ comp insurance. The platform automatically calculates and pays your workers’ comp premiums based on real-time payroll data with to-the-penny accuracy so you never under or overpay for premiums—or find yourself staring at a huge audit bill that you don’t know how to pay.
How Do You Find the Class Codes for Your State?
You know what workers' comp class codes are. You know what they’re used for and why they’re important. Now, let’s cover how to find the relevant class codes for your state.
Most states use the class codes established by the National Council on Compensation Insurance (NCCI), an independent advisory organization that gathers data on workers’ compensation claims and insurance—and uses that data in setting rates and building the NCCI class code system. If your business operates in an NCCI state, there are a number of digital resources (like this Alphabetical NCCI Code List) you can use to find the right class codes for your employees.
There are a number of states that have their own classification system for workers’ comp codes (or use a modified version of NCCI workers’ comp classification codes)—and if you operate your business in a state with its own class code system, you’ll need to determine the governing authority on workers’ compensation class codes in your area and look up the proper classification and class codes through those authorities. Those states include:
What Other Factors Do Insurance Companies Use to Determine Workers’ Comp Rates?
Class codes play a large role in determining your workers’ compensation insurance rates—but they’re not the only factor at play. Insurance agencies will also use your payroll, past workers’ compensation claims, and how long you’ve been in business to determine what kind of workers’ comp insurance rates you’ll pay.
For example, let’s say you are just starting a brand new business. In that situation, you’re probably going to pay higher workers’ comp premiums; because your business doesn’t have any history, there’s no real data for the insurance agency to assess when determining risk—and they’re likely going to take the cautious route and assign you a higher premium. Once you’ve established a history with the company—and they see you’re running a safe business—they’ll typically lower your premium to a more competitive rate.
Or let’s say you’ve been in business for a while—but you also have a higher-than-average volume of workers’ compensation claims. This can be an indicator that your workplace isn’t safe and that workers are at a higher risk than similar businesses—and, as a result, you’d likely get a higher premium. (On the flip side, if you can show the insurance company that your business has a lower-than-average volume of workers’ comp claims, you can likely score a discount on your insurance premiums.)
Or let’s say you’ve ramped up payroll in the past year. The more payroll you’re processing, the more time your team is spending at work—and the higher the likelihood that they could get hurt or injured. Again, this could result in a higher premium (while a decrease in payroll could result in a lower premium).
The point is, workers' comp class codes are one factor insurance agents use to determine risk and set workers’ comp insurance rates—but they’re not the only factor, and it’s important to understand all the ways your business will be evaluated for workers’ compensation coverage.
Simplify the Workers’ Comp Process with Hourly
Understanding how workers’ comp insurance rates are calculated—including understanding workers’ comp class codes—is important for business owners. But the process of securing workers’ comp insurance yourself—and making sure you’re getting the best rates—can be a hassle.
At Hourly, we’ve simplified the workers’ comp insurance process by syncing your payroll data directly with your workers’ comp policy so you only pay exactly what you owe on your premiums, not an estimate. Our goal is lower audit risk, faster payroll runs, and better claims and safety services for small businesses everywhere. Hourly is a licensed insurance agent with products underwritten by various insurance companies.