Sep 16 Workers’ Compensation Classifications and Codes: What You Need to Know
Workers‘ compensation classification codes are numeric codes that insurance providers use to categorize various working professions. For example, as a company‘s employee, you may be working as a contractor supervisor; however, the insurance company will know your job title by an assigned code, i.e., “5606.“
Insurance companies categorize various work types into classification codes, as this allows them to efficiently estimate a worker‘s compensation rate for any appropriate work associated risks.
For instance, if you are a 5606 (a field contractor), you will be entitled to a higher working compensation than an 8810 (a clerk) as you are more exposed to danger than your counterpart.
The insurance company will take all losses into account for each classification code and use this data to establish a base rate of compensation for that particular work category. In case you wish to know all NCI codes, you can check them both alphabetically and numerically.
Purpose of Workers’ Compensation Codes
These codes comprise three or four digits assigned by the National Council on Compensation Insurance (NCCI) or the state. Unlike most states, Pennsylvania is a non-NCCI state; therefore, they use their own workers’ compensating rates and codes.
PCRB – The Pennsylvania Compensation Rating Bureau is the responsible regulatory authority for compensation rates in the Commonwealth of Pennsylvania. That said – the state of PA does allow other private insurance providers to compete on compensation rates.
Workers’ compensation rates in Pennsylvania may vary for the similar code in a different state. This way, insurance providers can apply policy debits and credits up to 25 percent for adjusting their filed rates. Moreover, they can add discounts to a specific policy depending on the overall claim experience and size of the payroll.
Employers with “Experience Modification Rating” may be eligible for additional debits and credits applied to their insurance policies and rates. However, this will be based on prior workers’ compensation losses and premiums.
The State Workers’ Insurance Fund (SWIF) operates the state fund in Pennsylvania.
Classifications codes‘ basic purpose is to differentiate various job descriptions across various industries while providing premium guidelines for compensation insurance for each working category.
Basic compensation code typically represents a particular industry such as manufacturers, retailers, wholesalers, truckers and restaurants, etc. However, employees are usually grouped into specific classification codes based on their job duties.
There are several criteria to gather statistical data from each business operation and use this information to formulate a worker‘s compensation insurance rate for each industry.
For an insurance company, this marks a starting point for underwriting business. An adequate classification helps them estimate losses and expenses related to risk factors they are providing insurance for.
This workers‘ compensation code system highlights the significance of putting the business in the right category. Proper classification of a business is necessary to provide fair and rightful compensation insurance to the company‘s workers at a substantial rate.
Other States that Do Not Apply NCCI Classification Codes
There are a handful of states that do not practice NCCI workers‘ compensation classification codes. Those states are California, Delaware, New Jersey, and New York. Texas used to be one of them but has recently adapted the NCCI system. However, they still maintain certain variations in specific classification codes.