In our previous article on workers’ compensation audits, Avoiding Premium Audit Surprises–Key Considerations, we briefly discussed several classification codes commonly found on a Builder’s workers’ compensation policy. The purpose of this article is to expand on these class codes to help prepare you for an upcoming audit and ensure your employees are not misclassified. If you reach the end of this article and come to the realization that some of your workforce may technically be misclassified – know the intention of this article is not to send the message that your day of reckoning is coming, but to arm you with tools to prepare for and blunt a potentially unsettling event. A non-exhaustive list of the most common industry classifications follows below.
Please note that as of 7/1/2020, Massachusetts Workers’ Compensation rates have changed (average 12.9% decrease across all classification – see NorthStar’s previous article for additional details: ). Below we’re disclosing the rate as of 7/1, but also noting the “prior rate.”
Code: 5645
Classification: Carpentry-Residential dwellings not exceeding 3 stories in height
Rate per $100 payroll: $6.35 (prior rate $7.10)
Code 5645 essentially serves as the catch-all for residential construction operations, for new construction and remodeling projects alike, provided the property is under three stories in height. This includes rough framework, rough flooring, siding installation, and finish carpentry work when structural carpentry work is performed by the employer. Residential contractors engaged in the construction of other types of projects/structures (e.g. mixed-use developments, large apartment complexes greater than 3 stories, commercial/industrial, etc.) do not qualify for Code 5645.
Code: 5403
Classification: Carpentry-Residential dwellings exceeding 3 stories or commercial structures
Rate per $100 payroll: $7.77 (prior rate $7.64)
Code 5403 covers general carpentry work not otherwise classified in the WC Scopes Manual. Per the Manual, “Code 5403 applies to the construction of multiunit residential buildings exceeding three stories in height and to the construction of commercial buildings or structures, including mixed use buildings, with no height restriction.”
Code: 5437
Classification: Carpentry-Install of cabinet work or interior trim
Rate per $100 payroll: $3.84 (prior rate $4.49)
Code 5437 is typically referred to as the finish carpentry class and includes the installation of paneling, molding, cornices, parquet or finished wooden flooring, mantels, staircases, cabinets, and counters. This is a restrictive class code intended for specialty contractors that only perform finish carpentry. Per the WC Scopes Manual, “Code 5437 is not available for assignment to contractors who perform other carpentry operations at the same job or locations to which Code 5645 applies;” so, residential contractors that keep a finish carpenter on staff—who otherwise fits the description of Code 5437—and are also engaged in rough carpentry, may see their finish carpenter’s payroll classed to Code 5645. This restrictive guideline does not apply to commercial and mixed-use contractors whose general carpenters are covered by Code 5403.
Code: 2802
Classification: Carpentry-Shop only & drivers
Rate per $100 payroll: $3.20 (prior rate $3.67)
Code 2802 applies to employees tasked with the manufacture of wood products, ranging from cabinets to roof trusses, provided this work is performed at the employer’s facility. These workers can deliver finished products to jobsites, but no longer qualify for Code 2802 if they are engaged in the installation of these products.
Code: 5606
Classification: Contractor-Executive Supervisor
Rate per $100 payroll: $1.22 (prior rate $1.47)
Code 5606 is intended for persons having administrative or managerial responsibility over construction projects. Per the WC Scopes Manual, “Code 5606 is not available to any person who is directly in charge of construction work. Regardless of job title, any person exercising control of a construction project through job subcontractors is exercising direct supervisory control as opposed to indirect supervision.” In order for a project manager to be covered by Code 5606, supervision must be exercised through superintendents or forepersons of the employer, and cannot have direct charge over the workers at the jobsite–including subcontractors. Absent this layer of separation, the executive supervisor in question can be re-classed to Code 5645 or 5403.
Reassignment of project manager payroll from Code 5606 to 5645 has been perhaps the greatest source of audit-related consternation among contractors over the past several years, and for good reason: for every $100,000 payroll reassigned from 5606 to 5645, employers incur over $5,000 in additional premium (assuming a 1.00 Experience Mod… more on those later). Secondary to the financial impact of this reclassification is the frustration that certain employee may have been misclassified in the past, but hearing “you got away with it before,” is not a helpful salve when unexpected—and large—sums of money are due to your insurance company within 30 days.
The goal of your insurance company upon audit time will undoubtedly be to achieve an accurate audit result in light of the specific guidance set forth by applicable governing bodies; in other words, they are trying to “get it right.” That said, keep in mind that the insurance company auditor will visit your site or otherwise interact with you once per year – so it follows that classification errors may happen even in cases where the best intentions are present. The role of a good insurance broker in this process will be to help you proactively review your audit results, and advocate on your behalf in the event there is a discrepancy that merits dispute. As an educated insurance buyer, you are better equipped to manage employee job duties, exert greater control over your insurance premiums, and improve your bottom line.
All quoted information above is provided by the MA Workers’ Compensation Rating and Inspection Bureau: https://www.wcribma.org/mass/ToolsAndServices/MACI/Main.aspx