I’ve been working with workers comp since 2004 and although it’s the simplest of all the insurance coverages, it’s ironically the one that seems to cause the most confusion. I get more questions about workers comp than I do about any other coverage. Why is this? I don’t know….. maybe because workers comp is freaking EXPENSIVE!!!
When things are expensive the person paying the bill tends to want to know everything about it, if nothing else to confirm that the costs are legitimate. Understandable.
One of the recurring questions that I would like to address now is: Can you put my business in a different class code? This is a question that pops up typically because of costs. The business owner sees the rate he’s paying, which is determined by the class code his business is in, and thinks, “Surely there has to be a cheaper class code I can fit into.”
There most likely is a cheaper class code out there, but you most likely don’t fit into it. Why? Because there are objective criteria that determine what a business’s classification is. Your insurance agent cannot change it no matter how much he tries. Let’s take a restaurant for example. Restaurants fall into the 9079 class code and a typical rate in California right now is around 10%. Sandwich shops on the other hand are class code 8078 and their rate is somewhere around 6%. That’s a 40% difference! Easy to see why a restaurant would want to be a sandwich shop in this case. The problem is that to be a sandwich shop, you can only have toasters and microwaves to heat your food and you can’t serve alcohol. If you deep fry things and serve sake bombs, you’re going to be 9079, no matter how many sandwiches you serve.
Sometimes it’s a little more tricky, and your business doesn’t easily fit into a class code. In this case, you are given a class code “by analogy.” This happens with businesses that are new and/or very unique and there isn’t a class code set up for it yet. The Worker Comp Insurance Rating Bureau (WCIRB) will step in and make the call. They do this by determining the most similar class code based on what your employee’s physical work activities are. For example, say you are a mobile horse grooming business that goes to shows and stables and washes horses’ tails on site. Since there is no classification for mobile horse groomers because of its uniqueness and/or newness, you will most likely be assigned by analogy into the horse stable class code 7207 – even though you don’t have a stable – because your employees do similar physical work as those in a horse stable.
It is true, there are situations where a business is misclassed either because of an error on part of the insurance agent or company, or the business has changed its operations. When this happens, there are steps to correcting the error, and can be and easy or tedious process depending on a few factors. Mistakes can always be fixed.
Outside of an error, however, class codes are pretty much set in stone….. sorry!