For anyone owning a company, workers’ comp insurance is an inevitable necessity. But by learning how the system works, construction executives will be able to comfortably have a handle on what they are paying for, what affects their annual premium, and how to better manage and plan for unforeseen events. Over the next few blog posts, we'll discuss five proven ways to help construction executives reduce their workers’ compensation costs:
1. Ensure job classifications are accurate
Code misclassifications can cause workers’ comp premiums to skyrocket, so it is critical to be sure that the correct codes are being used. As many as 70% of companies overpay on their workers’ compensation insurance premiums, and the root cause is most often job code misclassifications. A proper classification helps insurers estimate expenses or losses related to the risk being insured. That means misclassification results in over-insuring expenses or losses.
With hundreds of classification codes it’s easy to misclassify jobs and it’s an incredibly common mistake. Business-type classification codes are assigned to companies in all industries except construction, agriculture and staffing services, where numerous employee codes are assigned to various individual employees. And those are the industries that tend to have the most classification errors due to the added layer of complexity.
A good example is a large staffing company that has multiple exposures (sometimes as high as 10) depending on the jobs that they are filling (storage warehouse, clerical, restaurant, construction, machine shop, textile manufacturing, etc.) Other times it isn’t how many codes they have, but are they for the right reasons? Another example is the code 5437 Carpentry, which is commonly misclassified to general contractors. This code is specifically for an artisan contractor, whose scope of work is doing specific cabinet installation and is a lower rate than most construction class codes in which the work is eminently more risky.
In industries that predominantly use business-type codes, there are also certain exemptions for individual job types (clerical, outside sales and drivers, in some cases). To say that the classification system is complex would be an understatement, so it is best to have a workers’ comp expert review your codes with you.
Written by Nick Oates
Workers Comp Specialist