Rule 1 - Assignment of Classifications

Revision History

Type

Effective Date

Circular

Notes

Revision

04/01/2019

C-18-23

NCCI Item B-1436 Revisions to North Carolina Basic Manual Classifications and Appendix E - Classifications By Hazard Group

Revision

10/01/2017

C-17-6

NC Basic Manual NCCI Item B-1433 - Part 1 Rules 1 and 2

Original

04/01/2016

C-16-6

North Carolina Basic Manual for Workers Compensation and Employer Liability - Digital Edition

 

 

A. Classification System

1.  The objective of the classification system is to group employers with similar operations into classifications so that:

a. The classification reflects the exposures common to those employers

b. The rate for each classification reflects the loss exposure common to those employers

2.  Subject to certain exceptions, it is the business of the employer within a state that is classified, not the separate employments, occupations, or operations within the business.

B. Classification Explanation

Classifications are divided into two types – Basic Classifications and Standard Exception Classifications.

1. Basic Classifications

Basic Classifications describe the business the employer is operating.  Except for the Standard Exception Classifications, the term basic classification is applied to all classifications shown in this manual.

 

Examples of classifications that describe the business of the employer:

 

Business

Classification

Manufacture of a product

Furniture Manufacturing

A process

Engraving

Construction or erection

Carpentry

A mercantile business

Hardware store

A service

Beauty salon


2. Standard Exception Classifications

Standard Exception Classifications describe jobs or occupations that are common to many businesses.  These common occupations are not included in the basic classification unless specified in the classification wording.  These classifications are described below.

a.  Clerical Office Employees NOC (Code 8810) and Clerical Office Telecommuter Employees (Code 8871)

The above classifications are assigned when all the following conditions are met:

1) Duties

Duties must be limited to the following work activities:

2) Site

a)  Code 8810 – The duties listed in Rule 1-B-2-a (1) must take place in a work area that is separated from the operating hazards of:

b)  Work stations or service areas for Code 8810 must be physically separated from the operating hazards by at least one of the following:

c)  Code 8871 – The clerical duties as defined in Rule 1-B-2-a (1) above must take place inside the home of the clerical employee.  The location must be separate and distinct from the employer’s.

3) Other

a)  Employees who meet the requirements for Code 8810 or Code 8871 will not be disqualified from assignment to these codes if they perform certain incidental non-clerical duties that are related to their employment.  These duties include:

b)  Employees who otherwise meet the requirements for Code 8810 and Code 8871 will be disqualified from assignment to this classification if their duties involve:

b.  Drivers, Chauffeurs, Messengers, and Their Helpers NOC -  Commercial (Code 7380)

This classification is assigned to employees who engage in duties on or in connection with a vehicle.  Garage employees and employees using bicycles as part of their work duties are included in this code.  Messenger and courier deliveries of documents and goods owned by the employer are assigned to the governing class code of the business when the deliveries are made by foot or public transportation.

Code 7380 does not apply when the basic classification wording includes drivers.  Refer to Rule 2-H-3 for vehicles under contract.

c. Salespersons or Collectors - Outside (Code 8742)

This classification is assigned to employees engaged in sales or collection duties away from their employer’s premises.

This classification is not assigned to employees who:

Code 8742 does not apply when the basic classification wording includes “Outside Salesperson” and/or “Collector”.

d. Automobile Salespersons (Code 8748)

This classification is assigned to employees who perform their duties on or away from the employer’s location.  Types of transactions can include, but are not limited to, sale and/or long-term lease of:

These employees are subject to the same rules and treatment as Code 8742 – Salespersons or Collectors – Outside.


3. General Inclusions

General Inclusions are operations that appear to be separate businesses but are included within the scope of all basic classifications.  These operations are not separately classified.  They include the following:

Exceptions:

(a) Autonomous drone aircraft computer system designers or programmers who qualify as clerical office employees in accordance with Rule 1-B-2-a and do not pilot or operate the drone aircraft are assigned to the appropriate clerical classification.

(b) If an employee qualifies as an outside salesperson in accordance with Rule 1-B-2-c, the piloting of the drone aircraft to support their sales duties is included within the classification assigned to the outside salesperson.

For employees that perform general inclusion duties for more than one basic classification, refer to Rule 2-G for classification treatment.

A general inclusion operation must be classified separately if any of the following conditions apply:

Example of a General Inclusion Exception:

An internet service provider, classified to the standard exception Code 8810 – Clerical Office Employees NOC, operates a restaurant for its employees’ use.  A restaurant operated for the insured’s employees is a general inclusion and usually not separately classified.  However, because this business is classified to a standard exception classification, the restaurant operations must be separately classified to the appropriate restaurant classification.

4. General Exclusions

Some operations in the business are so unusual for the business described in the basic classification they must be separately classified even though the operations are not conducted as a secondary business.  These operations are called general exclusions.  They are classified separately unless they are specifically included in the basic classification.  General exclusions are:

Example of a General Exclusion:

An internet service provider, classified to the standard exception Code 8810 – Clerical Office Employees NOC, maintains a private plane, pilot and flight crew for the use of executives traveling to various work locations.  The employer-provided aviation services are considered a general exclusion.  This means that unless a classification applicable to the business includes aviation, this service is separately classified.  Therefore, the aviation services provided by the internet service provider must be separately classified to the appropriate aviation classification(s).

5. Governing Classification

The governing classification at a specific location or job is the basic classification, other than a standard exception classification.

The governing classification is determined in accordance with the Governing Classification Determination Table.


Governing Classification Determination Table

If….

Then the governing classification is the …

A basic classification produces the greatest amount of payroll

Basic classification

A basic classification is applicable but no payroll is assigned

Basic classification

Multiple basic Classifications apply

Basic classification that is assigned the greatest amount of payroll

Multiple basic classifications apply but no payroll is assigned to any of the basic classifications

Basic classification that is the highest rated classification

A basic classification is not applicable

Standard exception classification that is assigned the greatest amount of payroll


The governing classification is used to determine the classification treatment of:

Example of a Governing Classification:

A business has the following payroll amounts assigned to the following classifications:

The governing code for this business is Code 2003 because it is the classification code, other than the standard exception code (8810), with the greatest amount of payroll.

6. Principal Business

The Principal Business is described by the basic classification with the largest amount of payroll.

If there is no basic classification other than the general inclusion or general exclusion operations, the standard exception operation that generates the largest amount of payroll is considered the principal business.

Examples of principal business and how it relates to governing classifications:

As this business performs multiple operations, the principal business is the basic classification with the greatest amount of payroll, Code 4777.  In this example, the principal business and governing classification are the same.

The governing classification and principal business in this example is Code 5445.  Although Code 8810 has more payroll, according to Rule 1-B-5 and 1-B-6, the governing classification and principal business excludes standard exception classifications (i.e., Code 8810).  See the following example for an exception to these rules.

The governing classification at Location 1 is Code 2501, the basic classification at this location with the greatest amount of payroll.  The governing classification at Location 2 is Code 8010, the basic classification at this location with the greatest amount of payroll.  The principal business for the insured is Code 8010, the basic classification that has the greatest amount of payroll for all operations.

C. Classification Wording

The following list provides a description of how classification wording shall be used:

1. Classification Captions and Notes

The caption is the heading or the title of the classification.

The note is the phrase that follows the caption.

The classification wording as a whole, including the caption and note, controls, restricts, or explains the classification usage.  The wording is also referred to as the "phraseology."

Example of a Classification entry:

Store: Fruit or vegetable – retail.  No handling of fresh meats.

2. Words and Phrases

a.  All Employees, All Other Employees, All Operations, or All Operations to Completion

If any of the above phrases are included, no other classification can be assigned unless noted in the classification wording. This applies even if some operations or employees are at a separate location.

Exceptions:

The following operations of a business must be separately classified even if the classification wording includes “All Employees,” “All Other Employees,” “All Operations,” or “All Operations to Completion”:

b. Clerical

Clerical means office employees and telecommuters, as defined in Rule 1-B-2-a.

c. Drivers

Drivers includes drivers, chauffeurs, messengers, and their helpers as defined in Rule 1-B-2-b.

d. “Includes” or “&”

If “includes” or “&” are in the classification wording, the operations or employees cited after those terms cannot be separately classified.  Even if the operation or employees may be best described by another classification or are at a separate location, another classification cannot be used.

NOTE:  If an insured has more than one basic classification, an employee’s payroll may be split among the codes appropriate for each operation.  Refer to Rule 2-G for additional information regarding Interchange of Labor.

e. Local Manager

Local manager means an employee who is directly in charge of the operations in the yard of a business and is exposed to the hazards of the business.  As such, the payroll of the local manager must be assigned to the governing classification unless another basic classification assigned to the business specifically includes this employee.

f. “No” or “Not”

A classification that includes a restrictive phrase beginning with “no” or “not” must not apply to a risk that conducts any operation described in the restrictive phrase.

Exception:

For construction, mercantile, or mining operations, this rule applies to each job or location.

g. NOC (Not Otherwise Classified)

If “NOC” is included in the classification wording, then that classification applies only if no other classification more specifically describes the insured’s business.

h. “Or” or “And”

The term “or” also means “and”. This definition applies only to these terms as used in a classification’s caption or notes.

i. Salespersons

Salespersons and collectors as defined in Rule 1-B-2-c.

j. Stories in Height

Certain classification wording refers to “stories in height.” A story is defined as (15) feet in height.  It is measured from the lowest point above ground level to the highest point above ground level.

k. To Be Separately Rated

If the classification wording contains the phrase “to be separately rated,” operations or employees referenced in those classifications must be classified separately.

For rules regarding the assignment of more than one basic classification refer to Rule 1-D-3.

l. Separate and Distinct Business

Separate and distinct business means an additional operation of the employer that is not included in the basic classification on the policy.  Refer to the following:

D. Classification Procedures

The object of the classification procedure is to assign the one basic classification that best describes the operations of the employer within North Carolina.  Subject to certain exceptions described in this rule, each classification includes all of the types of labor found within the business.

It is the business that is classified, not the individual employments, occupations, or operations within the business.

1. Separate Legal Entities

If multiple entities are insured under a single policy, the classification rules are applied separately to each of these legal entities.

2. Businesses Not Described by a Classification

If there is no basic classification that clearly describes the business, the classification that most closely describes the business must be assigned.  For a business not described by any classification, provide the wording and code number of the classification that most closely describes the business in Item 4 of the Information Page of the policy.  All the rules pertaining to the basic classification used must apply to this operation.

3. Assignment of More Than One Basic Classification

If an insured’s business meets the conditions of a, b, or c listed below, more than one basic classification may be assigned.  Operation by definition means activities, enterprises, processes, secondary businesses, or undertakings.

a.  The basic classification of the insured’s principal business requires certain operations or employees to be rated separately.

b.  The insured conducts one or more of the following business operations:

c.  The insured conducts more than one operation in a state.

1)  An insured would be described as conducting more than one operation in a state if portions of the insured’s operations are not encompassed by the basic classification applicable to the insured’s principal business operation.  For an insured’s additional business operations to qualify to be separately classified, these operations must meet all of the following conditions:

Example of two operations that could qualify as two separate businesses:

An insured operates bowling lanes and a movie theater within the same state. These distinct operations can qualify as two separate businesses for classification purposes because:

2)  Additional operations not encompassed in the insured’s principal business must meet all the conditions listed above in Rule 1-D-3-c (1) for the insured to be considered engaged in an additional operation.  In these instances, a separate basic classification may be assigned to each operation that qualifies as a separate additional operation.

3)  Additional operations that do not meet all conditions listed above in Rule 1-D-3-c (1) have a rate:

4)  Policies with more than one classification may include employees working under several classifications.  Payroll for these employees is subject to the Interchange of Labor rule.  Refer to Rule 2-G.

NOTE:  If the insured does not provide verifiable payroll records specific to the additional higher rated operation, then the principal and the additional operations are both assigned to the higher rated classification.  For a description of proper payroll records, refer to Rule 2-G-2.

d.  Construction or Erection Operations

Each type of construction or erection operation must be assigned to the classification that describes the operation only if separate payroll records are maintained for each operation.

If separate payroll records are not kept for any construction or erection operation, the highest rated classification that applies to the job or location where the operation is being performed must be used.

If a construction or erection operation is included in the scope of another classification, a separate code cannot be used.

1) Insured Subcontractors

Insured subcontractors who perform a single type of work on a construction project or job must be classified based on the classification that describes the type of work involved.

Exception:

All concrete construction operations including making and erecting forms, placing reinforcing steel, and stripping forms, when done by subcontractors, must be classified to the appropriate concrete construction code.

Example of how to classify the work performed by an insured subcontractor:

The insured subcontractor who performs only excavation work in connection with the construction of a sewer is classified under Excavation (Code 6217) rather than under Sewer Construction (Code 6306).

2) Uninsured Subcontractors

Uninsured subcontractors covered under the principal or general contractor’s policy are classified based on the classifications that would apply if the work were completed by the principal’s or general contractor’s employees.

Example of how to classify the work performed by an uninsured subcontractor:

The uninsured subcontractor who performs only excavation work, but is covered under the policy of the principal contractor performing the construction of a sewer, is classified under Sewer Construction (Code 6306).

e.  Farm Operations

A farm is described as any parcel(s) of land used for the purpose of agriculture, horticulture, viticulture, dairying, or raising of stock or poultry, for business or commercial purposes.

A division of payroll is allowed for each separate and distinct type of commercial farming operation if separate payroll records are maintained.

If separate payroll records are not maintained for the commercial farming operations or the records are not clear, the entire payroll of the farm must be separated on the basis of proportionate acreages.

Each farm classification includes:

Each farm classification excludes inside domestic workers at the farm location.

f.  Employee Leasing Firms, Labor Contractors, Professional Employer Organizations, and Temporary Labor Services

1)  Leased workers must be classified the same as direct employees of the client performing the same or similar duties.

2)  If the client has no direct employees that perform the same or similar duties, the leased workers are classified as if they were direct employees of the client entity.

Example of how to classify workers assigned to clients of employee leasing companies, labor contractors, and temporary labor services:

The client is a retail store classified to Code 8017:

g.  Mercantile Businesses

A mercantile business is any store or dealer engaged in the sale of goods or merchandise or in the sale of services.  Each location of the mercantile business is separately classified.

Operations of a store are classified based on the principal type of merchandise sold and whether the operations are wholesale or retail.  For this rule, principal means more than 50% of gross receipts, excluding sale of lottery tickets.

The definitions and instructions below must be considered when determining the appropriate store classification.

1) Type of Merchandise Sold

If a store sells different types of goods, each of which may be subject to a different classification, the store is to be assigned to the classification that best describes the merchandise that generates more than 50% of gross receipts.

2) Wholesale vs. Retail

For classification purposes, the term “Retail” is defined as the sale of merchandise to the general public for personal or household consumption or use and not for resale.

For classification purposes, the term “Wholesale” is defined as the sale of merchandise for resale to others or sales to builders, contractors, manufacturers, or others for use in their business or as raw materials.

Exception:

If a store’s sales are clearly retail in nature, the appropriate classification for the retail store may be assigned regardless of the definition of retail above.

Examples of store sales that are clearly retail in nature:

In these cases, the stores would clearly be classified as retail except for the ultimate use or purchaser of the products.

3) Combination of Retail and Wholesale

A store that sells merchandise on both a wholesale and retail basis must use a classification that is based on whether the majority of gross receipts come from wholesale or retail sales.

4. Standard Exceptions

Standard Exceptions must be separately classified unless specifically included in a classification assigned to the business.  Standard exception classifications apply even if the basic classification includes phrases such as “all employees” or “all operations.”

5. Businesses Described by a Standard Exception Classification

If the principal business is described by a standard exception classification, the operations of all employees not included in the definition of a standard exception classification must be assigned to the separate basic classification that most closely describes their operation.

This rules applies to both an employer's business within a state and to individual jobs or locations where the governing classification is described by a standard exception classification.

Example of principal business that is described by a standard exception code:

The insured is a public museum:

6. Classifications Limited To Separate and Distinct Businesses

The assignment of certain classifications is limited by their classification notes to separate and distinct businesses.  The notes may describe an operation that frequently is an integral part of a business described by another classification.

7. Repair Operations

Insureds with shop operations that involve the repair of a product for which there is no repair classification are classified using the classification code that best describes the manufacturing of the product, unless the repair work is specifically referred to by another classification, footnote, or definition in the manual.

Example of repair operations that are classified to the manufacturing code:

8. Recycling Operations

a.  The collection, sorting, and handling of recyclable materials for resale to others must use the appropriate store or dealer classification or the classification that most closely describes the business.

b.  Insureds whose operations involve the reuse of materials for the production of a new product are classified using the classification code that applies to the manufacture of the new product unless the work is specifically referred to by another classification, footnote, or definition in the manual.

E. Miscellaneous Employees

1.  Miscellaneous employees who perform duties that are commonly performed for separate operations that are subject to more than one basic classification must be assigned to the governing classification.

2.  Miscellaneous employees include but are not limited to the following:

a.  General superintendents other than construction executives that meet the requirements of Code 5606 – Contractor – Project Manager, Construction Executive, Construction Manager, or Construction Superintendent

b.  Maintenance or power plant employees

c.  Shipping or receiving clerks

d.  Yard workers other than construction yard employees properly assigned to Code 8227 – Construction or Erection Permanent Yard

NOTE:  If the governing class code is a standard exception, refer to Rule 1-D-5 for additional information.

Example of classification for miscellaneous employees:

The insured has two separate operations:  a machine shop (Code 3632) on one floor of the building and a plastics manufacturing business (Code 4452) on another floor. If it is determined that Code 3632 is the governing classification, all elevator operators, porters, cleaners, superintendents, and shipping clerks serving both operations are assigned to Code 3632.

F. Classification Changes or Corrections

1.  Classification changes due to changes in an insured’s operations will be applied as of the date the change in operations occurred.

2.  Classification corrections that result in a decrease in premium, whether determined during the policy period or at audit, must be applied retroactively to the effective date of the policy.

3.  Classification corrections that result in an increase in premium, must be applied as follows:

 

If the correction in classification is effective…

Then the correction is applied…

During the first 120 days of the policy term…

Retroactively to the inception of the policy.

After the first 120 days of the policy term, but before the final 90 days…

As of the date the carrier discovers the cause for that correction.

During the last 90 days of the policy term…

Only to a renewal policy, if any.

 

The effective date of change, for purposes of the time periods noted in the table above, is the date a carrier applies a classification change.

Exceptions to the table above:

a.  If the classification correction is the result of an omission or misrepresentation by the insured, its agents, employees, officers, or directors, then the correction must be applied from the date on which the change would have applied if such omission or misrepresentation had not occurred.

b.  The above rules do not apply to the following types of operations; therefore, classifications are assigned and applied at any time during the term of the policy or at audit:

4.  For purposes of Rule 1-F, the reallocation of payroll among classifications on the policy is not considered a change or correction in classification(s).

Example of reallocation of payroll:

5.  No application to change classification(s) on the grounds that the risk has been improperly classified will be considered by the NCRB unless:

As provided in the standard workers compensation and employers liability policy, the insurance carrier is permitted to audit or re-audit within three years after termination of the policy.  The revised audit may be for the purpose of reallocation or amendment of the payroll or other premium basis, according to the rules, rates, and rating plans applicable under the manuals used by the carriers at the time the policy was terminated.