Workers compensation codes are a basic part of the pricing mechanism for workers compensation insurance. In simple terms workers comp codes are four numbers assigned to a description of a specific job or work process. Each of these codes is then assigned a rate per 100 of remuneration (payroll) when used to price out a workers compensation policy. Here's the cool part....there are over 700 possible workers compensation codes now in use to choose from!

Would you believe.....

• Iron Steel Erection - decorative
• Iron Steel Erection - door & sash
• Iron Steel Erection - frame structures not over two stories
• Iron Steel Erection - metal bridges

or how about a sample from the "M's".....

• Matzoth manufacturing (just what is matzoth anyway?)
• Mausoleums in cemeteries - erection only
• Mayonnaise manufacturing
• Meat products manufacturing

So this is just a small sampling of some of the headings available for workers compensation classification use. Believe me, it can sometimes become bizarre.

Here's how the workers comp codes fit into the overall workers compensation classification system.

This system of classification was developed as an organized structure intended to group similar work process together. It is a method that crosses all boundaries of industry and applies to all employers. By grouping these similar work process into specific classes it allows insurance rates to be more representative of the type of exposures generated by those work processes. In other words, similar businesses with similar work processes will receive similar rates for their workers compensation insurance.

An important side note to the workers compensation classification system is the notion that it is the business that is classed, not the individual jobs within that business. This is know as assigning the "governing class code."

The governing workers compensation class code is described as that code which best describes the business operation and which includes the most payroll generated by the business.

The workers comp code for a roofing business would carry a high rate per 100 of payroll, possibly $20 or more depending on the individual state involved. Where the code for a retail shoe store would carry a rate much lower, possibly $ 2. The relationship is pretty obvious in this example; the roofer is exposed to a much higher possibility and severity of injury as compared to the shoe store employee. This is not to say a severe injury could not happen to the shoe store employee, it's just more likely to happen to the roofer.

Both of these operations would be assigned an individual workers compensation code and each code would represent a different rate.

The primary workers compensation authority is the National Council on Compensation Insurance otherwise known as NCCI. NCCI is the advisory organization that is responsible for the development and maintenance of the workers comp classification system used in most states.

Some states do not participate in the NCCI classification system and have adopted their own advisory authority.

I'll go into more detail in future hubs about the state advisory organizations and their impact on workers comp codes and classifications.

Ok, so we know workers compensation codes and the classification system is important. It is a system developed to class employers business operations with similar work processes and is instrumental in the proper pricing of a workers comp policy. As a final note, remember, proper codes lead to correct premiums. Never underestimate the impact on a workers comp policy premium that incorrect codes can play!

Thanks, I hope this has been helpful to you and your business!