I’ll start this blog by explaining how your workers’ compensation (WC) policy is priced. When an insurance carrier prices a WC policy, they start by classifying your payroll. Carriers group your workers’ payroll into categories based on “primary job function” or what the worker spends most of their time doing. For example, jobs are grouped into classifications such as: clerical, donut shop, roller skating rink, discotheque, and property managers. Carriers then use these classifications to track how much WC loss each job will yield. They have their math gurus (actuaries) look at the aggregate loss amount to get how much premium per $100 of payroll they need to collect. This premium rate is then applied to your payroll to get the foundation for your policy premium. There are other elements to the final premium, but for this article and the benefit of my real estate friends, I’m just going to focus on the classification aspect.
Do you fall into a professional or maintenance function? Real estate property managers and owners, as well as condominium managers and owners, have two main WC classifications. The following are the four-digit codes and full code titles:
- 9012 Buildings Operation by Owner, Lessee, or Real Estate Management Firm:
- Professional Employees
- Property Managers and Leasing Agents
- 9015 Buildings Operation by Owner, Lessee, or Real Estate Management Firm:
The difference between these two codes is primarily professional/office function (9012) vs. a maintenance function (9015). The audit manual states, “Employees assigned to code 9012 includes those performing clerical or administrative functions. In addition, they may oversee maintenance or security operations. However, an employee directly supervising or actually performing maintenance or security work would be assigned to code 9015.” Makes sense, right?
Here comes your nightmare. The difference in premium price between 9012 and 9015 is about 300% and can be subject to interpretation of an ‘exuberant’ carrier auditor. I’ve had instances where a property management company’s maintenance staff (properly classified as 9015) occupied offices in the same space as the executives, agents, and accounting functions (properly classified as 9012). So, the carrier auditor applied the rate for 9015 for the whole office. Commence nightmare. The auditor made the argument that the function of the executives, agents, and accounting was to support the property management and/or maintenance function, therefore, 9015 was the proper code. As a result, the carrier delivered a six-digit additional premium audit! Almost every real estate company I meet with has some version of this terrible story.
So, how can you avoid the nightmare? The best way to address this scenario is to be proactive. Prior to the audit, make sure your team groups the payrolls themselves and keeps supporting job functions on hand. The person who meets with the carrier auditor should be well-versed on the two codes and emphasize the professional and/or clerical aspects in jobs that are properly classified as 9012. Lastly, partner with an insurance broker who knows these codes, has credibility with the carrier, and can clearly articulate your operations.
In the above scenario, the client came to us to resolve the audit dispute, and we were able to get the carrier to accept our explanation and interpretation of the two WC codes, thus saving $100,000 in additional premium.
A member of the MMA real estate is ready to help you avoid a WC nightmare. Chat with us today.