General Approach to Classifying a Business

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1 W o r k e r s C o m p e n s a t i o n I n s u r a n c e R a t i n g B u r e a u o f C a l i f o r n i a General Approach to Classifying a Business Presented by the WCIRB and IIABCal Notice The information provided in this webinar was developed by the Workers Compensation Insurance Rating Bureau of California (WCIRB) solely for the purpose of discussion during this webinar. The WCIRB shall not be liable for any damages, of any kind, whether direct, indirect, incidental, punitive or consequential, arising from the use, inability to use, or reliance upon information provided in this webinar. The Independent Insurance Agents and Brokers of California (IIABCal) is acting only as a host for this webinar and the WCIRB is not in any way affiliated with IIABCal Workers Compensation Insurance Rating Bureau of California. All rights reserved. No part of this work may be reproduced or transmitted in any form or by any means, electronic or mechanical, including, without limitation, photocopying and recording, or by any information storage or retrieval system without the prior written permission of the Workers Compensation Insurance Rating Bureau of California (WCIRB), unless such copying is expressly permitted by federal copyright law. No copyright is claimed in the text of statutes and regulations quoted within this work. Workers Compensation Insurance Rating Bureau of California, WCIRB, WCIRB California, WCIRB Connect, WCIRB Inquiry, X-Mod Direct, escad and the WCIRB California logo (WCIRB Marks) are registered trademarks or service marks of the WCIRB. WCIRB Marks may not be displayed or used in any manner without the WCIRB s prior written permission. Any permitted copying of this work must maintain any and all trademarks and/or service marks on all copies. To seek permission to use any of the WCIRB Marks or any copyrighted material, please contact the WCIRB at customerservice@wcirb.com. Webinar Agenda The WCIRB and IIABCal have partnered to provide a series of workers comp webinars targeted to agents and brokers. Today s presentation includes: A general approach to classifying a business for workers compensation insurance Q&A session WCIRB California. All Rights Reserved. 1

2 Webinar Speaker Lynn Yelverton Quality Assurance Director, Classification and Test Audit WCIRB California Poll Question #1 What s your level of expertise with this topic? How many businesses have you classified? None I m a novice Not that many I m just getting started Quite a few I m an advanced beginner Too many to count I m a veteran WCIRB California. All Rights Reserved. 2

3 Poll Question #2 How long do you think it takes to become proficient at classifying businesses for workers compensation insurance? 30 minutes 1 month 2 years 20 years Examples of Classifications 9079(1), RESTAURANTS OR TAVERNS all employees including musicians and entertainers 0042, LANDSCAPE GARDENING all operations including maintenance of gardens 3632, MACHINE SHOPS N.O.C. 5403, CARPENTRY including the installation of interior trim, builders finish, doors and cabinet work in connection therewith employees whose regular hourly wage does not equal or exceed $30.00 per hour N.O.C. 8859(1), COMPUTER PROGRAMMING OR SOFTWARE DEVELOPMENT all employees including Clerical Office Employees and Outside Salespersons WCIRB California. All Rights Reserved. 3

4 General Approach to Classifying a Business 1. Get Familiar with Your Classification Toolbox 2. Remember Your Goal 3. Gather Information about the Operations 4. Refer to the USRP 5. Search and Review Classifications 6. Contact the WCIRB When You Need Assistance 1. Get Familiar with Your Classification Toolbox California Workers Compensation Uniform Statistical Reporting Plan-1995 (USRP) The USRP contains a complete listing of all standard classifications, as well as the rules which govern their application The Classification Search on WCIRB.com allows users to search for classifications by code number or keywords WCIRB California. All Rights Reserved. 4

5 1. Get Familiar with Your Classification Toolbox WCIRB.com 1. Get Familiar with Your Classification Toolbox The Uniform Statistical Reporting Plan (USRP) Part 3 of the USRP Section I, Introduction Section II, Classification Terminology Section III, General Classification Procedures Section IV, Special Industry Classification Procedures You Will Find The objective of the Standard Classification System Definitions of key terms and phrases The rules governing the basic structure of the Standard Classification System (e.g. Single Enterprise, Multiple Enterprises, Standard Exceptions) The rules that apply to specific industries that don t readily comport to the Standard Classification System WCIRB California. All Rights Reserved. 5

6 2. Remember Your Goal Determine which classification(s) best describe the policyholder s operations based on the USRP provisions What could happen if a business is incorrectly classified? Future re-classification to a higher-rated classification may result in an unexpected bill for additional premium due Pure premium rates for that industry can be impacted The employer s experience modification will also be incorrect since experience rating is a comparison of the employer to others within the same classification Uniform Statistical Reporting Plan Objective of the Standard Classification System The objective of the classification system is to group employers into classifications so that each classification reflects the risk of loss common to those employers. With few exceptions, it is the business of the employer within California that is classified, not the separate employments, occupations or operations within the business. WCIRB California. All Rights Reserved. 6

7 3. Gather Information about the Operations How does the policyholder generate revenue? Do they manufacture a product? Provide a service? Sell something? Grow a crop or raise animals (agricultural exposure)? Build, erect or construct something? 3. Gather Information about the Operations Potential Questions to Ask What is the product or service provided? What raw materials or resources are used? What processes are involved in producing the product or services? What tools, equipment or machinery (if any) are used? Who are their customers? Are there any other unique or defining characteristics of the business? WCIRB California. All Rights Reserved. 7

8 3. Gather Information about the Operations Additional Considerations Does the policyholder operate multiple business entities? If so, are the operations related or do entities provide their services to each other? Does the policyholder operate multiple locations? If so, are the operations as a whole described by a single classification or do they constitute separate and distinct business activities? Does the policyholder retain outside salespersons or clerical office employees (Standard Exceptions)? 4. Refer to the USRP Specific Assignment General Classification Procedures (USRP, Part 3, Section III) directs: Any business or operation specifically described by a classification shall be assigned to that classification For example, a physician operating a medical practice must be assigned to Classification 8834, Physicians Practices and Outpatient Clinics all employees including Clerical Office Employees The vast majority of classification assignments are specific assignments WCIRB California. All Rights Reserved. 8

9 4. Refer to the USRP Assignment by Analogy There are approximately 500 specific classifications described by more than 700 separate phraseologies When a business does not have a specific classification code, classification assignment is made by analogy Factors to consider for analogous assignments Industry type Products, raw materials Who purchases the products How products are sold Materials, tools and equipment Licensing Type of crops or animals raised 4. Refer to the USRP Single Enterprise Rule The most common and simplest type of business operation to classify The various activities and departments that support a single business operation make up a single enterprise Most often has a single source of revenue Employer s business consists of: One or more operations Performed at one or more locations Where all operations are contemplated within the scope of a single classification The entire exposure is assigned to a single classification WCIRB California. All Rights Reserved. 9

10 4. Refer to the USRP Single Enterprise Rule Restaurant Example Hosts/hostesses, wait staff, cooks, bakers, dishwashers, bus staff, parking valets and bartenders A variety of specific job tasks Activities, duties, hazards and pay scales vary HOWEVER All tasks and the separate location are used only for the restaurant and these are all normal restaurant operations THEREFORE Classification 9079(1), Restaurants or Taverns, applies to all of the employees 4. Refer to the USRP Multiple Enterprises Does the policyholder s operation consist of two or more distinct operations that do not normally prevail in the business described by a single classification? If so, here are some questions to ask: Does the operation develop a separate revenue stream? Is the operation described by another standard classification? Could the operation exist on its own, separate from the remaining business? Does the operation comprise a significant portion of the overall business? WCIRB California. All Rights Reserved. 10

11 5. Search and Review Classifications Does the classification phraseology specifically include certain operations or employees? Are there classification directives or footnotes that point to another classification or otherwise affect the assignment? Are there any other classifiable operations such as Standard Exceptions (outside sales or clerical office employees)? Refer to the USRP, Part 3, Section III, Rule 4 Are there any General Exclusions or General Inclusions? Refer to the USRP, Part 3, Section III, Rules 5 and 6 Let s Classify This Business! Share the Art organizes art and craft festivals throughout the Bay Area They rent a venue and solicit vendors to sell hand-made art, jewelry and gift items They are responsible for all marketing and operations during the festival Share the Art also operates a booth selling their own jewelry, as well as a snack bar selling hamburgers, hot dogs and soda to festival attendees WCIRB California. All Rights Reserved. 11

12 5. Search and Review Classifications Classification 9095 EVENT MARKET, FESTIVAL OR TRADE SHOW 9095 OPERATION all employees N.O.C. This classification applies to firms that organize events and rent spaces to vendors that sell products or provide information to customers. Such events include, but are not limited to, farmers markets, flea markets, swap meets, art or antique festivals and trade shows (public or private). Vendors, restaurants and retail stores shall be separately classified. Poll Question #3 Are there any classifications other than Classification 9095 which apply to Share the Art s operations? (Check all that apply) A) Yes, Classification 9079(1), Restaurants or Taverns, also applies B) Yes, Classification 8013(1), Stores jewelry wholesale or retail, also applies C) Yes, Classification 9009, Building Operation commercial properties, also applies D) No, only Classification 9095, Event Market, Festival or Trade Show Operation all employees, applies WCIRB California. All Rights Reserved. 12

13 Poll Question #3 Are there any classifications other than Classification 9095 which apply to Share the Art s operations? (Check all that apply) A) Yes, Classification 9079(1), Restaurants or Taverns, also applies B) Yes, Classification 8013(1), Stores jewelry wholesale or retail, also applies C) Yes, Classification 9009, Building Operation commercial properties, also applies D) No, only Classification 9095, Event Market, Festival or Trade Show Operation all employees, applies 6. Contact the WCIRB When You Need Assistance WCIRB Customer Service is available to provide classification assistance Make sure you gather as much information as possible prior to calling or ing to facilitate the process The Policyholder Ombudsman is a resource for California employers Insurers can request a WCIRB special inspection for a fee Every insurer, as well as the WCIRB, has a formal dispute process WCIRB California. All Rights Reserved. 13

14 Get Familiar with Your Classification Toolbox Classification and Test Audit Insight Sign up for WCIRB alerts at Get Familiar with Your Classification Toolbox WCIRB Connect WCIRB California. All Rights Reserved. 14

15 Coming Soon! CompEssentials TM Classification Basics Comprehensive and flexible online self-paced workers comp training Continuing education credits for licensed agents and brokers WCIRB at InsurFEST 2016 InsurFEST 2016 November 2-4, 2016 Omni Rancho Las Palmas Resort & Spa Rancho Mirage, CA For more information: WCIRB California. All Rights Reserved. 15