Workers’ compensation class codes

Workers’ comp class codes are three- or four-digit numerical codes assigned to more than 700 business and job types. Developed by the National Council on Compensation Insurance (NCCI), an industry-funded group, the codes represent small businesses and professions whose employees could be exposed to work-related injuries or illnesses.

Workers’ compensation insurance providers use the codes to determine how risky your business is to insure and how much to charge you for your insurance.

Workers’ comp class codes are used to fairly distribute the costs of workers’ compensation insurance among employers:

• Using NCCI class codes, companies with more workplace risks pay more for their coverage and those with fewer risks pay less.
• Without such a system, all companies would pay the same premium, forcing the safer companies to subsidize the riskier ones.

Thirty-five states use the standard NCCI system, and 10 states have modified NCCI’s class codes. Five have opted out entirely, creating their own homegrown systems for evaluating workers’ compensation risks (California, New Jersey, New York, Delaware, and Pennsylvania). Learn more about workers’ compensation laws in your state.

The NCCI collects information on work-related injuries and illnesses for each of its class codes. This results in a base claims rate for each type of company and certain jobs.

Your company’s base rate will increase or decrease if you have more or fewer claims, respectively, than the NCCI base rate for your type of business.

Your insurer will apply your base rate to your employee census or payroll to determine how to calculate your workers’ compensation insurance premium.

Many businesses have several workers’ compensation class codes. For example, a home builder would submit roofers under class code 5551 and clerical staff under code 8810.

Because roofers face greater risks of injury than clerical staff, the different class codes will give the insurer an accurate view of how risky your company will be to insure.

You want your codes to be accurate so you don’t overpay for your workers’ compensation insurance or get penalized for underreporting your risk.

If the insurer audits your account and discovers you used “safer” codes than you should have, it might retroactively bill you for up to three years of additional premiums. And if you made several class code mistakes, the insurer might cancel your policy.

When you shop for another policy, your new insurer will ask whether you recently were dropped or denied workers’ compensation insurance. A “yes” answer may lead the insurer to either deny your application or charge you more.

NCCI provides a free resource for businesses to look up class codes. To get a closer look at the NCCI risk-classification system, check out the Scopes® Manual, a print and online reference for workers’ compensation insurers, agents, and brokers.

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