Reducing Workers Compensation Cost:
Separating Payrolls with Multiple Class Codes
When multiple workers compensation class codes apply to a business, typically each of the codes have a different rate per $100 of payroll.
When the end of policy payroll audit is being completed the auditor will automatically assign ALL of the employee’s payroll to the most expensive workers comp rate, unless the business owner can provide verifiable records proving when an employee was performing work in a each particular class code along with the wages they were compensated.
Providing verifiable records separating payrolls into the correct class code can result in substantial savings.
As time consuming of a task as this may seem it can be as easy and straightforward as a log book. At the end of the business day or when your processing payroll write the date, employee name, employee hours, job duties and job location address. For business owners who use a payroll company or an online payroll/accounting software, input the class code per hours worked and job duties performed.
Typically multiple class codes apply to construction businesses so the example below is related to a construction business located in Alabama and performing trim carpenty, painting, and interior installations:
This example is based on a total payroll of $188,000.00.
5437 – Interior Trim – Payroll = $30,000 – Rate per $100 payroll – 17.01%
5474 – Interior Painting – Payroll = $20,000 – Rate per $100 payroll – 15.91%
9521 – Interior Decor Install – Payroll = $138,000 – Rate per $100 payroll – 11.19%
Total Premium for this business when providing Verifiable Records that separate payrolls by workers compensation class codes = $23,727
Total Premium without providing verifiable records to separate payrolls = $31,978
*** Without verifiable records all payroll would be classified to the most expensive code which is Interior Trim, 5437.
The difference in premium is $8,251.
So I guess the question is whether or not a few easy steps to break out payroll is worth the savings for the employer.
A workers compensation classification is a 3 or 4 digit code assigned descripe a type of work or “job duty”. Most states utilize the classification system from the National Council on Compensation Insurance (NCCI). A few states maintain their own classification system.