For temporary staffing firms to price their business profitably, they must cover their own administrative, marketing, and operational expenses, as well as factor in a profit margin when determining pricing for their client company’s staffing needs. Included in their operational cost is Workers’ Compensation insurance. Therefore, knowing how much a temporary staffing firm will pay for this coverage, per host employer, is critical for determining their bottom line.
Classification codes play an important role in calculating Workers’ Compensation premiums. Here’s an overview of how classification codes impact Workers’ Compensation insurance.
How Classification Codes Work in Workers’ Compensation Insurance
Classification codes are numerical codes that represent specific occupational categories. These codes are used to classify temporary employees based on their job duties, the nature of business for the host employer and the associated risks. Classification codes are standardized and maintained by Workers’ Compensation rating bureaus.
Workers’ Compensation premiums are calculated based on the classification codes and associated payroll. Each classification code has an assigned rate, inclusive of the expected cost of covering injuries or illnesses associated with that job, called a ‘loss cost’. The manual premium is determined by multiplying the filed class code rate by the employer’s payroll divided by 100. Filed Rate x (Payroll/100)
Higher-risk job classifications generally have higher loss costs, resulting in higher manual premiums for employers with employees in those classifications. Conversely, lower-risk job classifications tend to have lower loss costs.
Accurate classification is important to ensure employers pay appropriate premiums based on the risks associated with their employees’ job placements. Misclassifying an employee into a lower rated classification code can result in an underpayment and likely a balance due at audit.
How We Classify Temporary Staffing Employees
At Prescient National, we understand the importance of properly coding Workers’ Compensation classification for our temporary staffing insureds. We typically classify temporary placement requests according to the governing class code of the business, but we understand there can be situations where those classifications are inadequate. In those cases, we work with our agency partners to determine the best code fit, as long as we have enough information to support the application of a code other than the governing. Most of the classification codes are pre-approved by Prescient National Underwriting. Each time we send a new or renewal quote to a staffing agency, we provide our customers with an approved class code list as well as a list of operations that we are unable to cover. Once our policy is in-force, the class code referral process comes into play. Typically, when an insurance agent receives a request for a code or rate from their client for a potential job placement, he or she can review the list of our approved codes to determine if the employee(s) and client company fall within the governing classification code we list for each industry.
For example, if the temporary staffing firm is placing a line cook at a restaurant, the insurance agency can review our approved list of codes and see “9082 – Restaurant NOC” listed. From there, the agency will either provide the rate if already on the policy, or report to the Underwriting department to receive the proper code and rate for the insured to use in their pricing calculation for the bid. If the bid is awarded, we are then informed by our agency and we endorse our policy accordingly by adding the classification for future payroll reporting.
If the classification requested falls outside an approved class code, the agency would refer the placement to Prescient National Underwriting. Part of this ‘referral’ includes the submission of a class code/rate request form for our review. We then have a 24-hour turnaround guarantee for our agency partners on those requests. We understand how important timing is for these situations and aim to deliver a response back to our agency with either an approved code and rate, a request for additional information, or a decline. Receiving a class code declination is usually due to inherently dangerous operations. These may include, but are not limited to, highly hazardous chemical exposures, working at heights, or working below ground level. Operations with these exposures could result in a catastrophic incident if they are not well controlled.
For example, a temporary staffing firm is looking to place an employee with a construction firm who will perform work on a building project. The applicable code in this case is not listed on the ‘approved’ list. The insurance agency will contact us and provide the classification request form which includes details such as job location, job duration, payroll amount, and the specifics of the tasks involved, etc. This allows us to determine the best classification assignment. From there, we decide whether we can accommodate the request given the exposures that are present and type of Workers’ Compensation product applicable. For any questions on this process, please contact your Underwriting team at Prescient National Insurance Services.
