NCCI's 2016 Classification Inspection Program Update - Top Five Reclassified Codes - Mercantile Operations

Posted Date: June 02, 2016
    

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.

An analysis of this year’s data showed that the top five reclassified codes essentially stayed the same as last year’s codes. In fact, Code 8810—Clerical Office Employees NOC and Code 8742—Salespersons or Collectors—Outside remain as the top two reclassified codes. Both codes are most commonly reclassified to Code 8723—Insurance Companies—Including Clerical & Salespersons. Code 8723 was established as a national classification for most NCCI states in 2012; however, we continue to find insurance companies classified to Codes 8810 and 8742 even though Code 8723 includes both clerical and outside sales employees.

For this year’s article, NCCI is focusing on the top five reclassified codes for an individual industry, mercantile operations, otherwise known as retail or wholesale stores. Based on an analysis of inspections completed between 2013 and the end of 2015 in all NCCI states (including Texas, where the Classification Inspection Program started on June 1, 2015), NCCI has identified five mercantile classification codes that are most commonly reclassified, as well as the classification codes into which the employers are typically moved.

NCCI’s Basic Manual Rule 1-D-3-g provides instruction on how to classify a mercantile business. Please refer to NCCI’s Basic Manual for the full list of rules, along with any state exceptions.

Mercantile Classification Codes Commonly Reclassified Reclassified to Classification Code
8017—Store—Retail NOC
  • 8010—Store—Hardware
  • 8018—Store—Wholesale—NOC
  • 8008—Store—Clothing, Wearing Apparel, or Dry Goods—Retail
  • 8044—Store—Furniture & Drivers
  • 9083—Restaurant—Fast Food
8018—Store—Wholesale—NOC
  • 8010—Store—Hardware
  • 8032—Store—Clothing, Wearing Apparel, or Dry Goods—Wholesale
  • 8017—Store—Retail NOC
  • 8232—Building Material Dealer—New Materials Only—All Other Employees & Yard, Warehouse, Drivers
  • 8046—Store—Automobile Parts and Accessories NOC & Drivers
8010—Store—Hardware
  • 8018—Store—Wholesale—NOC
  • 8017—Store—Retail NOC
  • 8058—Building Material Dealer—New Materials Only—Store Employees
  • 8046—Store—Automobile Parts and Accessories NOC & Drivers
  • 8111—Plumbers’ Supplies Dealer & Drivers
8044—Store—Furniture & Drivers
  • 8017—Store—Retail NOC
  • 8018—Store—Wholesale—NOC
  • 8010—Store—Hardware
  • 9519—Household and Commercial Appliances—Electrical—Installation, Service, or Repair & Drivers
  • 8235—Sash, Door, or Assembled Millwork Dealer & Drivers
8046—Store—Automobile Parts and Accessories NOC & Drivers
  • 8380—Automobile Service or Repair Center & Drivers
  • 8018—Store—Wholesale—NOC
  • 8010—Store—Hardware
  • 8391—Automobile Repair Shop & Parts Department Employees, Drivers
  • 3821—Automobile Recycling & Drivers

Summary on Mercantile Classifications

In general, a mercantile business is any store or dealer engaged in the sale of goods or merchandise, or in the sale of services. For store operations with multiple locations, the classification is assigned separately for each location. Store operations are classified based on the principal type of merchandise sold and whether the operations are wholesale or retail. For the purpose of classifying mercantile businesses, principal means more than 50% of gross receipts, excluding receipts derived from the sale of lottery tickets. It is important to note that gross receipts must be determined to classify any mercantile operation.

Retail applies to the sale of merchandise to the general public for personal or household consumption or use and not for resale. Wholesale applies to the sale of merchandise for resale to others; or sale to manufacturers, builders, contractors, or others for use in their business or as raw materials.

If a store’s sales are clearly retail in nature, the appropriate retail store classification may be assigned regardless of the definition of retail above. A store that sells merchandise on a combined wholesale and retail basis must be assigned to the appropriate store classification depending on whether the majority of gross receipts come from wholesale or retail sales.

Some reasons for the reclassification of the mercantile codes (Codes 8017, 8018, 8010, 8044, and 8046) are described below:

1. Code 8017—Store—Retail NOC
In most cases, the reason for the reclassification from Code 8017 was often due to the gross receipts exceeding 50% for one type of product sold. An example is a retail store that sells a variety of products such as clothing, jewelry, furniture, and gifts. This might appear to be a store that may qualify for Code 8017 since the store sells multiple products. However, if the sale of clothing accounts for more than 50% of gross receipts, the proper classification is Code 8008—Clothing, Wearing Apparel, or Dry Goods—Retail. In this same example, if the sale of furniture accounts for more than 50% of gross receipts, then Code 8044—Store—Furniture & Drivers would apply.

2. Code 8018—Store—Wholesale—NOC
Similar to Code 8017, the reason for the reclassification from Code 8018 was most often due to the gross receipts exceeding 50% for one type of product sold. Our inspection program identified that the reclassified operations were better described as hardware, clothing, building material, or auto parts stores based on the percentage of gross receipts. When a store was reclassified from Code 8018 to Code 8017, it was determined that the majority of the store’s gross receipts came from retail sales.

3. Code 8010—Store—Hardware
Stores selling hardware were commonly reclassified to plumbing supply or auto parts stores. For example, while it is common for hardware stores to sell some plumbing supplies and auto parts, when the percentage of gross receipts for plumbing supplies exceeds 50%, the proper classification is Code 8111—Plumbers’ Supplies Dealer & Drivers. When the percentage of gross receipts for auto parts exceeds 50%, the proper classification is Code 8046—Store—Automobile Parts and Accessories NOC & Drivers.

4. Code 8044—Store—Furniture & Drivers
Stores selling furniture were most frequently reclassified to Code 8017 or 8018. Some reclassified store operations had sections or departments that sold furniture, but furniture sales did not exceed 50% of gross receipts. As a result, Code 8044 was replaced by a retail or wholesale NOC classification in these instances.

5. Code 8046—Store—Automobile Parts and Accessories NOC & Drivers
Operations classified to Code 8046 were most commonly reclassified to Code 8380— Automobile Service or Repair Center & Drivers (which is a national classification) or Code 8391—Automobile Repair Shop & Parts Department Employees, Drivers (which is a state special classification). It is not uncommon for automobile repair centers to also sell automobile parts and accessories. However, when the governing classification was changed from Code 8046 to either Code 8380 or 8391, it was determined that the repair operations were predominant, and that the store operations did not qualify for an additional basic classification.

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-2015-02—Countrywide—Harvesting Contractors
  • FYI-CW-2015-07—Countrywide—Scopes of Basic Manual Classifications—Clarification for Codes 4611 and 8045
  • FYI-CW-2015-08—Countrywide—Classification Assignment Guidelines for NCCI’s Basic Manual Rules 1-B-3—General Inclusions and 1-B-4—General Exclusions
  • 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—Application of Basic Manual Rule 1-D-3—Assignment of More Than One Basic Classification

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® of Basic Manual Classifications, a supplement to NCCI’s Basic Manual, is a guide for 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.