Did you know insurance companies calculate the cost of workers' compensation insurance using several factors?
Location, total payroll and variables related to perceived risk all play a role — but the biggest factors are your classification codes.
Workers' comp class codes — what are they?
Insurance carriers use class codes to estimate workers' comp rates for individual employees.
Each business has a code based on:
- Its type of work
- The amount of risk associated with each role within an industry
The state of Colorado uses class codes from the National Council on Compensation Insurance (NCCI).
NCCI determines workers' comp class codes and experience modification numbers. Your e-mod score reflects your previous history of workers' comp claims.
How are workers' comp class codes used?
Most insurance companies incorporate data from each code to determine a workers' comp rate. The rate takes into account the average number of workplace injuries and workers' comp claims for each role.
Generally, industries with inherently riskier workplace environments, such as construction and labor, will have a higher cost of workers' comp insurance for that class code.
Construction workers, roofers, loggers, and others who hold the most dangerous jobs typically pose higher risk levels than office, retail, and food industry workers.
How do you find your company's workers' comp class codes?
Each class code consists of a three- or four-digit number.
States using the NCCI system, like Colorado, compile these codes in the NCCI Scopes Manual, which contains comprehensive descriptions of each code and underwriting information.
Determining correct class codes for your employees is key to getting an accurate quote for workers' comp insurance.
To determine your employees' classification code, you'll need to consider:
- Your industry.
- The primary products you sell or services you offer (consumer retail goods, digital software, commercial services, etc.).
- Tasks performed by your business (clerical, sales, labor, etc.).
- Whether there are contractors or subcontractors that also require coverage.
With this information, you can use the NCCI's free online Class Look-Up tool to find the rate for each code.
How do you use the class code?
Once you determine the correct class codes for your business, you can estimate your workers' comp premium per employee.
Make sure to include all your employees — whether full-time, part-time, temporary, or seasonal. You should also consider any contractors or subcontractors who will need workers' comp coverage.
Your workers' comp insurer can adjust your final rate at the end of your policy year to account for any over-or under-projections with your payroll.
How do insurers determine workers' comp rates?
Insurers calculate class code rates as the cost per $100 in payroll.
For example, a class code rate of $1.50 for an employee with $100,000 in annual payroll would cost an estimated $1,500 per year in workers' comp premiums.
Ensure your employees and businesses are appropriately covered for your organization’s line of work by reviewing class codes and other items related to your workers' comp policy before your annual policy review.
How do you stay compliant with Colorado workers' comp class codes and requirements?
Protecting your workers is always a top priority— and using the correct class codes helps to protect you and your business.
Not only that, but Colorado requires all employers to provide workers' comp insurance and to use the correct workers' comp class codes for each employee.
At best, providing inaccurate information can result in overpaying for your workers' comp insurance. At worst, it can result in audits, fines, or even legal charges.
The process of determining your employees' class is often complicated. Pinnacol Assurance's smart workers' comp technology and dedicated team of underwriters can help you find your class codes and get the best rates.
Get started with our quick online application. You can get a quote in as little as 90 seconds, or start your policy in under five minutes!
Prefer a more personal touch? Connect with one of our trusted agent partners in your area.