Mod Classification: Can Make a World of Difference
Whyis it important to make sure your workers’ compensation classification codes are correct?
It’s been reported that nearly 75 percent of workers’ compensation (WC) premium audits are incorrect. Why? There are many possible reasons:
- Business operations have changed and the classification descriptions haven’t been incorporated in the WC rating
- The NCCI classification description has changed and the broker, underwriter or auditor hasn’t implemented the correction
- There’s a misunderstanding as to which classification the payroll should be applied; Many times, the payroll finds its way to the lowest classification rate
It seems logical that you’d want to keep your payroll in the lowest rated classification if at all possible, but this isn’t necessarily true. I was recently involved in a classification dispute that involved a painting contractor. The contractor is involved in industrial painting, as well as commercial painting operations. For years, their entire payroll was included in the 5474 painting code (painting NOC & shop, drivers), rate of $11.80. However, they do a good amount of painting operations over two stories, including some bridge painting, 5037 (structures over two stories, drivers), rate of $39.11. Although both classifications were included, the 5037 code was listed on an “if any” payroll basis. The painter never included their higher-rated payroll under this classification and the auditor never questioned the exposure.
This past year, their experience mod increased to a 1.06. Because the mod was now greater than a 1.0, they were no longer eligible for their contractor’s credit. In addition, they were no longer eligible to bid on certain projects based on contractual requirement of a 1.0 or better.
After we dug into their operations and the payroll exposures included in their modification calculation, we determined that a significant amount of payroll should‘ve been included in the 5037 class code as they were painting industrial structures over two stories tall.
- As a result of redistributing their payroll to the 5037 class code, several things happened:
Their experience mod was reduced to a .89 from a 1.06
- They’re now eligible for the Illinois contractor’s credit (their credit equated to 37 percent)
- Their premium was reduced by 20 percent based on the reduction in the mod and the use of the contractor’s credit
- They’re now eligible to bid on projects that require a 1.0 mod or better
What many forget is that one of the primary drivers that affect the mod factor is the classification. The tougher the classification (higher the wc rate), the more credit is applied in the mod factor. These mod examples illustrate how the reallocation of payrolls makes a significant impact on the mod rating factor.
Contact a member of the ‘A’ team if you have questions about your classification code.
- Workers' Compensation Videos
- Correct Classifications: A Key to Construction Risk Management
- Workers' Compensation E-Book
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