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Workers Comp Insurance Cost: How to Avoid Overpaying

As a small business owner, workers’ compensation insurance is something you probably need. How much it will cost depends primarily on two major factors: total employee payroll and classification codes.

To avoid overpaying on your workers’ compensation coverage, it’s critical that both of these numbers are accurate. In this post, we explain classification codes.

(See this post for more information on calculating payroll correctly: How to Calculate Payroll to Find Your Workers’ Compensation Cost.)

A classification code is assigned to employees based on their job responsibilities. For example, the code for a carpenter won’t be the same as a delivery driver. This code is assigned a rate, which is used to calculate the cost per employee.

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The Basics of Classification Codes

Full-time, part-time, seasonal — the work status of employees doesn’t matter. Regardless of how many hours they work, an employee is assigned a class code associated with their profession.

Each class code is assigned its own rate (represented per $100 in payroll), and that rate is used to calculate the workers' compensation policy premium.

A very small business, such as one with three or fewer employees, may only have one classification code. However, the more employees you have, the more likely it is that you’ll be dealing with multiple class codes.

Why does this matter? Compliance and cost.

Workers need to be insured under the correct class code to have the appropriate coverage. Getting class codes right can also help your bottom line: The rate for a plumbing business in Indiana is $1.68 per $100 in payroll, while the rate for clerical work is just $0.35.

This means that insuring your office manager under clerical and not plumbing could mean a savings of 80%.

How to Determine Employee Class Codes

If you currently have a workers’ compensation policy, review it for employee class codes. Each class code is assigned a unique four digit number. For example, clerical is 8810. (Pennsylvania and Delaware use three-digit numbers for class codes.)

Note: Don’t rely solely on this if your operations have changed (which may be why you’re searching for a new policy). If you’ve added clerical or sales roles, or expanded operations into other areas, additional class codes may apply.

If you’ve never purchased coverage before, here are some ways to figure out your employees’ class codes:

  • Contact an insurance agent or broker
  • Search online by state (example: North Carolina Rate Bureau)
  • Use WorkCompOne’s easy online quoting tool ⬇️

classification code tool

Tips to Choose the Right Class Code

To choose the best class code(s) for your business, consider the following:

  • What is the primary product or service you sell?
  • What tasks do your employees perform?
  • Do you have contractors or subcontractors? Do they require coverage?

Now that you understand how to group employees by classification code, you’re armed with the information you need to shop for and purchase the appropriate coverage.

Learn More About How Much Workers’ Compensation Costs


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