How to Classify Workers' Comp Codes for Staffing Agencies

Workers' Compensation Insurance covers medical expenses and lost wages when an employee suffers an injury at work. Every state, apart from Texas, requires staffing agencies with employees to hold workers’ compensation insurance.

As a staffing agency with W-2 employees in the US, you will be responsible for holding workers' compensation insurance, accurately reporting payroll to your insurance carrier for each workers' comp code, and ultimately handling claims. That means you need to understand how workers' compensation codes work and what common pitfalls to avoid.

Of course, your workers' compensation carrier or your broker can advise you, but you should know how they work to guide your business decisions.

WC Codes are Based on Operations

A common pitfall is assuming a workers' comp code hinges on employee job titles. Wrong.

In the US, the primary determinant of the workers' compensation code is the core business activity of the client. For example, a clothing manufacturer would be classified under code 2501, regardless of whether they have packaging specialists or tailors on staff. Many new staffing agency owners incorrectly assume a fork lift driver would be under a different workers' comp code than a pick-and-packer at the same facility. This intuition is wrong, however, since it's the client's business activity that determines the code.

Understanding the Exceptions

While core operations decide the workers' comp code, there are exceptions. Certain job roles, irrespective of the company's main function, have their own designated codes:

• ‍Clerical Employees (code 8810): This code applies to administrative staff across various industries, from Apple to local accounting firms. ‍
• Sales Employees (code 8742): This code covers those who sell products or services, whether they work for a software giant like Microsoft or a local bookstore.‍
• Drivers (code 7380): This classification applies to employees who operate vehicles for a company, but exceptions (see below) might apply.

Exceptions to the Exceptions

There's another layer to consider: exceptions to the exceptions.

For instance, while a receptionist at a clothing manufacturer might typically fall under the clerical code (8810), there are cases where the specific nature of the company (manufacturing) can override this, keeping them under the general manufacturing classification. This is especially true if a clerical worker is spending a considerable amount of time in a non-office setting.

In some cases, drivers are part of the client's governing code instead of its own code. The phraseology (i.e. the short description) of the workers' comp code will include "and drivers".

Additional Considerations

For recruitment agencies entering the US market, here are some additional considerations:

• ‍State-Specific Coding: Different states may use slightly different coding systems. For example, the National Council on Compensation Insurance (NCCI) system is common in many states, while California, Pennsylvania, Delaware, and others have their own unique system. These systems are sometimes similar to NCCI but not always. In the so-called "monopolistic" states, your staffing agency will need to buy workers' compensation insurance directly from the government (WA, OH, ND, WY), and the codes will vary there as well.
• ‍Staffing-Specific Codes: Pennsylvania uses a 3-digit system with an additional leading "2" (e.g., "2091") for all temporary staffing work. Washington state does a similar thing but with a leading "7". This minor detail is important for accurate classification and reporting since the staffing codes are often more expensive.‍
• Construction Industry Anomaly: Unlike other sectors, construction classifications depend on the specific task performed by the employee, not the overall client company governing code. For example, an interior painter would fall under code 5474, while a residential carpenter would have code 5645.

Understanding "All Employees"

It's important to understand that the term "All Employees" in a classification doesn't encompass every single worker. Staffing agencies must ensure accurate classification and risk assessment for workers' compensation insurance. The exceptions we discussed earlier, such as clerical staff and salespeople, are excluded from this umbrella term. Being mindful of this distinction ensures accurate classification and risk assessment.

Common Misclassifications

Here's a look at some commonly misclassified codes, along with key factors to differentiate them:

• ‍Wholesale vs. Warehousing (code 8018 vs. 8292): The key here lies in ownership of the stored goods. Wholesalers (code 8018) own the products they store, while warehousing facilities (code 8292) provide storage space for others' goods. The 8292/8018 codes are some of the most commonly reclassified codes in the NCCI system.‍
• Warehousing vs. Freight Handling (code 8292 vs. 7360): The duration of storage is crucial. Warehousing (code 8292) involves long-term storage, while freight handling (code 7360) deals with frequent movement of goods. Look for terms like "logistics" in the company description, which might indicate a freight-handling operation.‍
• Drivers vs. Trucking (code 7380 vs. 7228/7229): It's about the type of goods that the company transports. Code 7380 applies to drivers transporting their employer's insured goods. Trucking classifications (7228 for distances under 200 miles and 7229 for exceeding 200 miles) involve transporting non-owned goods.‍
• Debris Removal vs. Janitorial Services (code 5610 vs. 9014): This distinction hinges on the material the company removes. Code 5610 applies to construction debris removal, while janitorial services (code 9014) handle routine building cleaning.

Healthcare Industry Specifics: Codes for Hospitals & Nursing Homes

The healthcare industry has unique classification considerations. Here's a breakdown of two common codes relevant to staffing agencies placing healthcare professionals:

• ‍Hospitals (code 8833): This code applies to general hospitals (in NCCI and NCCI-adjacent states)‍
• Nursing Homes (codes 8829 & 8824): These codes differentiate between skilled nursing facilities (code 8829) and residential care facilities (code 8824) (in NCCI and NCCI-adjacent states)

Conclusion

Understanding workers' comp codes is not going to happen overnight. Ask for help understanding the differences between codes from your broker, do some reading, and take notes in your internal systems to help your team understand the nuances of workers' compensation codes.

At Ascen, our EOR platform helps staffing agencies and recruitment firms determine the correct code and holds workers’ compensation insurance. Ascen also handles workers' compensation claims in the event of an accident or workplace injury.

Compliance risks can seriously hamper expansion in the US where labor laws are complex and vary by state. If you’re a staffing agency or recruitment firm looking for more guidance, please contact us.