NCCI's Classification Inspection Program - Top Five Reclassified Codes in 2016

Posted Date: June 12, 2017
    

As part of its core services, NCCI continuously conducts classification inspections in all NCCI states. This specific service is called the Classification Inspection Program. The overall intent of the Classification Inspection Program is to monitor the accurate and consistent application of the classification system, thereby maintaining its overall integrity.

In years past, NCCI has identified the top five reclassified classification codes based on an analysis of inspections completed within the prior three years. The term reclassification refers to the governing class code changes reflected on an NCCI Inspection & Classification Report. According to Rule 1-B-5 of NCCI's Basic Manual for Workers Compensation and Employers Liability Insurance (Basic Manual), the governing code is the classification at a specific job or location (other than a Standard Exception code) that produces the greatest amount of payroll.

For this year's article, NCCI is focusing on the top five reclassified codes for 2016, based on an analysis of inspections completed in 2016 in all NCCI states. This provides a snapshot of the most current year's inspection information. NCCI has identified the top five classification codes that are most commonly reclassified, as well as the classification codes into which employers are typically moved (in order of frequency).

NCCI's Basic Manual Rule 1—Classification Assignment provides instructions on how to classify businesses. Please refer to NCCI's Basic Manual for the full list of rules and classifications, along with any state exceptions.

Classification Codes Commonly Reclassified Reclassified to Classification Code
8017—Store—Retail NOC
  • 8018—Store—Wholesale—NOC
  • 8008—Store—Clothing, Wearing Apparel, or Dry Goods—Retail
  • 8010—Store—Hardware
  • 9083—Restaurant—Fast Food
  • 8044—Store—Furniture & Drivers
8810—Clerical Office Employees NOC
  • 8723—Insurance Companies—Including Clerical & Salespersons
  • 8855—Banks and Trust Companies—All Employees, Salespersons, Drivers & Clerical
  • 8018—Store—Wholesale—NOC
  • 8742—Salespersons or Collectors—Outside
  • 8803—Auditor, Accountant, or Computer System Designer or Programmer—Traveling
9082—Restaurant NOC
  • 9083—Restaurant—Fast Food
  • 9084—Bar, Discotheque, Lounge, Nightclub or Tavern
  • 8008—Store—Clothing, Wearing Apparel, or Dry Goods—Retail
  • 8017—Store—Retail NOC
  • 9016—Amusement Park or Exhibition Operation & Drivers
8018—Store—Wholesale—NOC
  • 8010—Store—Hardware
  • 8032—Store—Clothing, Wearing Apparel, or Dry Goods—Wholesale
  • 8017—Store—Retail NOC
  • 8044—Store—Furniture & Drivers
  • 8107—Machinery Dealer NOC—Store or Yard & Drivers
9014—Janitorial Services by Contractors—No Window Cleaning Above Ground Level & Drivers
  • 0917—Residential Cleaning Services by Contractor—Inside
  • 5650—Exterminator*
  • 9015—Building or Property Management—All Other Employees
  • 8855—Banks and Trust Companies—All Employees, Salespersons, Drivers & Clerical
  • 8018—Store—Wholesale—NOC
*Arizona State Special Code

Summary of the Top Five Reclassified Codes

Some reasons for the reclassification of these codes (Codes 8017, 8810, 9082, 8018, and 9014) are described below:

1. Code 8017—Store—Retail NOC
The two primary factors for the reclassification from Code 8017 were due to the gross receipts exceeding 50% for one type of product sold and classifying retail vs. wholesale operations.

An example of a gross receipts reclassification would be retail stores that sell a variety of products such as clothing, jewelry, furniture, toys, and kitchenware. In this type of retail store, clothing item sales frequently exceed 50% of the gross receipts. When this is the case, then Code 8008—Clothing, Wearing Apparel, or Dry Goods—Retail applies. If the sale of furniture exceeds 50% of the gross receipts, then Code 8044—Store—Furniture & Drivers applies.

For retail vs. wholesale operations, there are several factors to consider when determining a classification. One factor is the purchaser of the goods (i.e., general public or business). An example would be a store that sells fruit and produce to grocers and restaurants. Since this is a business-to-business transaction, the proper classification would be Code 8018—Store—Fruit or Vegetable—Wholesale.

NCCI's Basic Manual Rule 1-D-3-g provides further instructions for classifying mercantile businesses. It is important to review the various mercantile classifications available in NCCI's Basic Manual because some specify the product included in the code, while others include both retail and wholesale operations.

2. Code 8810—Clerical Office Employees NOC
Operations originally classified to Code 8810 were most commonly reclassified to Code 8723—Insurance Companies—Including Clerical & Salespersons and Code 8855—Banks and Trust Companies—All Employees, Salespersons, Drivers & Clerical. In 2012, both codes were established as national classifications for most NCCI states; however, we continue to find insurance companies and agencies, as well as banks, classified to Codes 8810 and 8742 even though Codes 8723 and 8855 include clerical and outside sales employees.

3. Code 9082—Restaurant NOC
Operations classified to Code 9082 were most commonly reclassified to Code 9083—Restaurant—Fast Food. One key factor in determining whether to use Code 9082 or 9083 is if the restaurant has wait staff. NCCI's Scopes® of Basic Manual Classifications (Scopes® Manual) states that "Code 9082 contemplates the 'traditional' restaurant that provides wait service." NCCI's Basic Manual states that Code 9083, "Shall not be assigned to a risk that employs wait staff." For example, a restaurant serves a variety of menu items such as pizza, pasta dishes/entrées, burgers, etc., but all orders generally are placed at a counter and picked up by the customer at the counter, and all seating is self-service. No wait service is provided to place or receive a food order. The applicable classification is Code 9083. However, if this same restaurant provides wait staff to seat customers, to take their food orders, and to bring their food to the table, the proper classification would be Code 9082. Patrons of this type of restaurant are generally expected to give the wait staff a gratuity based on the quality of service rendered. In addition, when classifying a restaurant that serves alcoholic beverages, the gross receipts from the sale of alcoholic beverages must be determined. If the alcoholic beverage receipts are greater than 50%, then Code 9084—Bar, Discotheque, Lounge, Nightclub or Tavern would be the appropriate classification code.

4. Code 8018—Store—Wholesale—NOC
Like Code 8017, the reason for the reclassification from Code 8018 was predominantly due to the gross receipts exceeding 50% for one type of product sold. NCCI's Classification Inspection Program identified that the appropriate codes for these reclassified operations, based on percentage of gross receipts, included hardware, clothing, furniture, and industrial machinery/supplies. Codes 8010 and 8044 include both retail and wholesale operations. When a store was reclassified from Code 8018 to Code 8017, it was primarily when a store had both retail and wholesale sales, and the store's retail receipts exceeded 50% of the total gross receipts. An example is a general variety store that sells merchandise including toys, apparel, housewares, and health and beauty products. No one product or product group accounts for more than 50% of the gross receipts. The store sells to retail customers and to businesses who may remarket the product. The store's gross receipts are 70% retail sales and 30% wholesale sales. Code 8017 is the appropriate classification code for this store because its retail receipts exceed 50% of the overall gross receipts.

5. Code 9014—Janitorial Services by Contractors—No Window Cleaning Above Ground Level & Drivers
Operations classified to Code 9014 were most frequently reclassified to Code 0917—Residential Cleaning Services by Contractor—Inside. When classifying a cleaning business, it is important to determine the clients that the work is performed for (i.e., residential households or commercial businesses). NCCI's Basic Manual states that Code 0917 is "Applicable to businesses engaged in providing residential services performed inside a customer's residence. Refer to Code 9014 for commercial cleaning services and cleaning service contractors who provide clean-up crews to prepare residential properties for future occupants." This note provides specific directions in the classification of a cleaning contractor.

In addition to this article, NCCI recently released the following educational circulars on classification topics in an effort to further communicate the proper classification treatment for operations that are commonly reclassified:

  • FYI-CW-2015-10—Countrywide—Scopes of Basic Manual Classifications—Updates for Classifying Solar Panel Installation, Superstores and Warehouse Clubs, and Automated Cable Laying
  • FYI-CW-2016-01—Countrywide—Application of Basic Manual Rule 1-D-3—Assignment of More Than One Basic Classification
  • FYI-CW-2016-05—Countrywide—Classification of Grain Inspection and Weighing
  • FYI-CW-2017-01—Countrywide—Classification of Tree Planting, Pruning, Trimming, or Spraying

Summary

It is imperative that the appropriate classification code(s) be assigned at the inception of a policy. Part Two of NCCI's Basic Manual contains the filed and approved phraseology and notes for each classification code. NCCI's Scopes® Manual, a supplement to NCCI's Basic Manual, is a guide to understanding and assigning classifications. The use of these tools, as well as asking the appropriate questions regarding an employer's operation, should greatly reduce the number of reclassified codes.

We are sharing our aggregate findings with our customers to communicate the trends that we are seeing in NCCI's Classification Inspection Program. We have provided some general information about the codes involved to illustrate some examples of the general problem areas that we have identified. Without a specific inspection to reference, NCCI can only provide general information on the codes involved.

If you have any questions or would like to order a classification inspection, please contact our Customer Service Center at 800-NCCI-123 (800-622-4123) or email us at customer_service@ncci.com. We're here to assist you Monday–Friday, 8:00 a.m.–8:00 p.m. ET.