Work Comp Classifications

From a reader...

Scott:

In presenting our insurance coverage information to a board this afternoon, I was questioned by an HR professional, who sits on one of our boards, regarding our WC classification of employees.  Almost 100% of our employees (except couriers/custodial) are classed as 8810 Clerical.  I reviewed this in-depth with our agent at the last renewal and the conclusion was to continue this blanket classification of most all employees.  The board member is suggesting that perhaps our commercial loan officers should be classed as “Outside Sales” – 8742.

What are your thoughts regarding addressing this again, and what are our risks in the event that the insurer feels we have mis-classed a group of employees?

Thanks,

My reply...

Glad to help.

I don't see this as a risk.  It is, however, something I would have pointed out had you retained me to help with the standard lines of insurance - nudge!

Two issues...

First, cash flow.  It is possible that sometime in the future an insurance company auditor will adjust the most recent policy and the current policy premiums.  That might mean about 70 cents per $100 (depending on your policy's rates) in payroll for those who should be classified as sales.

My second issue is less often discussed.  You have an experience modification as a part of your workers' compensation premium calculation.  It is a ratio of expected losses to actual losses.  An experience mod of 1.00 is average.  0.85 means your losses are below average.  1.25 means your losses are higher than average.

As you are putting payroll in a low rate / low hazard code (clerical) your mod is probably a point higher.  Even if you have low losses, misclassification pushes the mod up - though only slightly, as the relative payrolls are low.

While a higher mod (.01 or so, if that) does increase your premium, you are saving net on premium with employees rated in lower codes.

That said, classification is the insurer's responsibility - unless you are lying to the auditor, and that's fraud.  If the insurance company makes a mistake, it is their mistake.

There is no risk to claims not being paid.  There is no risk of a fine or any penalty.

I normally counsel my clients to sit tight.  If the auditor changes class, then pay the additional premium.

Work comp is like baseball - the other team has to tell the umpire you missed the base.  It is not golf where you are expected to rat on yourself.

Let me know if you have questions.  I am glad to talk about a review of the standard lines of insurance for your bank.