What Are Workers' Compensation Codes?

Workers' Compensation Codes

The most prominent workers' compensation codes were created by the NCCI. These codes are important to insurance companies. They determine the amount of remuneration an employee receives. They do so based on the nature of work you do. For instance, a roofer faces higher risks than a clerical officer. This means that the two employees will have different class codes. Approximately 700 workers' compensation class codes are currently in use.


NCCI is an organization developed to cater to the needs of employees. It ensures that workers receive healthy compensation. It collects data and analyzes industry trends before making key employee initiatives. Partnerships with states helps NCCI cover a broader scope. The organization currently partners with 35 states, while 11 other states maintain their own rating bureaus. The remaining four states are known as monopolistic states. This means they lack representation for workers' compensation policies through another state system. The four are: Washington, North Dakota, Wyoming, and Ohio. NCCI creates the workers' compensation codes. The codes make it easy to calculate due compensation.

The importance of correct classification

Picture this scenario. You work for a construction company that fits fences. As you do the construction, there are other employees who handle sales. You are out there in the field. The sales force works from the comfort of their offices. The risks you face are different from those faced by the sales team.

It makes no sense for everyone to classify the two types of employees under the same category. Correct classification gets rid of such misalignments. In many cases, employers are enticed to misclassify their employees. That is a wrong move and may trigger a shock audit. This is an audit done by an insurance provider to show that employees were not well classified. The client ends up being billed for up to three years of underpaid premiums.

Incorrect classification financially hooks the employer. The carrier may also refuse to renew them. This places the business in the uncomfortable state of trying to get new coverage. More expenses and losses end up being experienced in the process. Incorrect classification often leads to a quoted premium that is higher or lower than it should be.

Classification systems

Classification systems ensure there is equitable distribution of insurance costs among employers. Basically, employers pay more insurance for workers with high risks of accidents. Absence of such a system would mean all employers pay an equal rate for worker compensation. In the long run, low risk employers would subsidize the high risk ones.
It is worth noting that classification systems do not categorize individual employees. They group businesses, that is, employers with the same operations are grouped together. The reasoning behind such a system is that employees of the same business types have similar risks to injuries. For instance, employees who clean offices are all prone to slip and fall injuries. The types of accidents these workers face are consistent from one cleaner to the next.
Only a few states do not use the NCCI classification system. They include:

  • Delaware
  • California
  • New York
  • Pennsylvania
  • New Jersey

Texas recently enrolled in the NCCI classification system. However, the state's codes have made several variations to the actual classification rules.

Rules for workers' compensation codes

Defining an employee to be of a given compensation class code does not just happen haphazardly. There is a set of rules that NCCI considers. These help ensure proper classification.

1. Basic classification

Basic Classification is used to define the nature of a business. The type of business that an employer operates determines the basic classification. It is not a reflection of the tasks that are done by an employee.

For instance, say you have opened a company that manufactures hard candy. You employ three employees to handle orders. You also have twenty workers who do the actual manufacturing of candy. Your business is candy manufacturing, not sales. Therefore, the business falls under code 2041: Confection Manufacturing.

2. Standard exceptions

The workers of a business generally fall into the basic classification. However, there are some employees who perform duties common to most types of businesses. Standard Exceptions are used for classification of such functions. Outside sales employees (code 8742) and clerical office workers (code 8810) are good examples. The risks involved for the two types of employees are minimal compared to others. Thus, their class codes are relatively low.

An employee is only rated a sales worker when they handle specific sales duties. If you spend half of your day going through sales books and the other manufacturing candy, you will not be termed an outside salesperson. Standard exceptions are not applicable to employees captured under basic classification. Consider a salesperson in an insurance company. Insurance companies typically have sales work. Thus, such an employee is assigned code 8723 rather than 8742.

Table showing Standard Exceptions:

Employee Code
Salespersons, messengers, collectors - outside Code 8742
chauffeurs, drivers, their helpers Code 7380
Automobile salespersons Code 8748
Drafting employees or clerical officer Code 8810

3. Governing Classification

This is a classification besides the Standard Classification. It generates the most payroll. It may even be equal to the Basic Classification. The Governing Classification describes the operations that the employer's business does.

There are some cases where a worker may be classified as a Standard Exception. The example of an outside sales worker is applicable here. When that happens, the Standard Classification becomes the Governing Classification.

4. General Inclusions

General inclusions entail operations which may seem to be separate entities at first glance. These are included in the scope of all classifications if they are not specifically excluded in the classification phraseology. A cafeteria employee is an example of a general inclusion. This does not pertain to cafeterias in connection with erection, construction, or lumbering operations.

Another classic example involves hospital facilities that the insured operate for its employees. The Governing Classification that describes the risk encompasses the payroll of employees of plant hospitals. This comprises of payroll of nurses, doctors, and first aid attendants.

5. General Exclusions

Comprises of operations is excluded by all classifications unless they are a part of the manual classification. These activities are classified and rated separately. Operations captured by General Exclusions demand for the division of payroll. This happens without consideration of the classification wording such as ‘all operations' and ‘all employees.'

Aviation operations are a good example. This includes both ground crews and flying crew. Whether you are the pilot or a crew member, you will be separately classified. Any construction done by insured employees is also separately classified.

Some states may have different class codes for the same type of work

Each state has unique rules and regulations for workers' compensation. As already seen, 35 states use the NCCI class code system. These have the advantage of consistent work compensation classification codes. At the same time, there are some states that have independent systems. This brings about the difference.

The classification system developed by NCCI is the most widely used. But besides this, the independent system is equally effective for the 11 states. It serves the same function as the NCCI's system. In fact, it has most of its features borrowed from the former. For instance, the use of four codes is a feature found in NCCI workers' compensation class codes. You are also likely to find other similarities between the systems.


Workers' compensation class codes differentiate job duties performed by various employees. They act as a guide for insurance compensation. Currently, there are more than 700 of these codes.

The presence of these codes gives employees some peace of mind. They get reassured that they will not be undercompensated. Insurance companies are also helped to a greater extent. That is, they do not end up compensating rates that are more than acceptable figures.

ClaimFight.com - Sherlin Lindsay - author / writer

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