The Workers Compensation Classification Code System

The workers compensation classification code system was developed with the idea of grouping similar types of businesses into a single identifying class with an individual assigned code number. This grouping of businesses requires that each business operation contain similar work processes. In other words the type of work being performed would appear similar in the manner completed, the potential risk exposure for injury to those workers performing the work task and the overall process used to complete the task.

Here's how this system fits into the overall pricing mechanism for workers compensation insurance; Once a business has been classified and assigned the proper workers compensation code, the insurance company then gathers the payroll or remuneration for that class code assigned. The payroll or remuneration then becomes the exposure base on which the workers comp insurance premium is calculated. Here's an important part, each workers comp code has its own associated rate.

So each work process is identified and placed into the proper code, right? Well not so fast!

Now we have to talk about the concept of the governing classification.
The governing class code is that individual code which best describes the total business operation and where most of the payroll for the operation is generated. For example, under the roof of a metal goods manufacturing plant you may find different, but similar individual work processes. You may find lathing operations, welding, planing, boring and other metal working or finishing processes. You may also find in the shipping department those workers who package, wrap and ship the finished goods. The governing class code for this type of operation would be that of a metal goods manufacturing plant. So rather than many individual work comp class codes, as you might expect, you would only find the single code of metal goods manufacturing. Confusing, you bet!

The workers comp code for a metal goods manufacturing business would perhaps carry a a $9 rate per 100 of payroll depending on the individual state involved. The code for a retail drug store would carry a rate per 100 of say $2, much lower than the manufacturing operation. It's pretty obvious in this example, the higher the risk, the higher the rate.

This is just a small example of how the workers compensation classification code system works and how it impacts the cost of a workers comp policy. So armed with this information it's easy to see how important a role proper classification plays.

In future blogs I'll go deeper into the code relationship with the cost of a workers comp policy. I hope this information has been helpful.

Learn more about the workers compensation classification system at Workers Compensation Consultants.


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