Is Your Business Misclassified?

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Does the primary classification on your workers compensation policy accurately describe your business? If that classification is one of the most "reclassified codes" identified by the NCCI, the answer may be no.

Top Five Reclassified Codes

A report published by the NCCI in 2015 designated the following classifications as the top five reclassified codes. The NCCI identified these codes by analyzing data from quality assurance inspections it performed between 2012 and 2014.

8810Clerical Office Workers NOC
8742Salespersons or Collectors--Outside
9015Building or Property Management--All Other Employees
8601Architectural or Engineering Firm--Including Salespersons and Drivers
5191Office Machine Installation, Inspection, Adjustment or Repair

Of all the codes used in the NCCI classification system, the five codes listed above were reclassified (changed to a different code) the most frequently. Codes are reclassified when they have been used incorrectly on an employer's workers compensation policy. 

Governing Classifications

The top five reclassified codes were governing classifications on employers' workers compensation policies. The governing classification is the classification that is assigned the most payroll. For example, suppose that your workers compensation policy includes two classifications, 8810 and 8742. If the payroll assigned to code 8810 exceeds the amount assigned to code 8742, code 8810 is the governing classification.

The NCCI's report lists the classifications to which the reassigned codes were most often changed. For instance, code 8810 was often changed to 8723 (Insurance Companies), 8855 (Banks and Trust Companies), or 8803 (Traveling Auditors, Accounts or Computer System Designers).  A link to the report is available below.

Classification Inspections

The NCCI conducts quality assurance inspections to ensure that employers and insurers are using the classification system correctly. The system is based on the idea that employers with similar operations and exposures should be grouped into the same classification.

The proper use of class codes is essential for the classification system to function as intended. The NCCI collects premium and loss data from insurers. It uses this data to generate a loss cost (or a rate) for each class code. If losses have been assigned to the wrong code, the loss cost calculated for that code may not accurately reflect the risks associated with it.

The NCCI decides which businesses to inspect. Employers may be subject to an inspection if their governing classification is one of the most reclassified codes. Employers that are selected for inspections are notified in advance. When the inspector arrives, he or she may tour the employer's facility and review payroll records. Once the inspection has been completed, the inspector prepares a report. The NCCI then determines whether the employer's classifications are correct.

A classification inspection is not intended to punish the employer.

In many cases, the inspection indicates that the existing codes on the employer's workers compensation policy are correct and that no action is needed. If changes are required, the NCCI will notify the employer.

A NCCI classification inspection is not a workplace safety assessment. It is not designed to ensure that employers comply with OSHA's regulations. 

An employer may request a quality assurance inspection from the NCCI. The reason is typically dissatisfaction with the classifications assigned to the business by the workers compensation insurer. An inspection request form is available online. The NCCI charges a fee to perform a classification inspection.

Inspections in Non-NCCI States

The NCCI  does not perform inspections in states that are not NCCI subscribers. In independent and monopolistic states, the state workers compensation authority may perform inspections to ensure that proper classifications are used.

Some states use the term survey or audit instead of inspection.