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Apr 12, 2010

How Do I Properly Classify My Employees

Standard Classification System

The primary purpose of the classification system is to facilitate the accurate collection of data so that the cost of workers' compensation insurance can be distributed as equitably as possible. To do that, the classification system is designed to divide payroll data into groups in order to match the premium that you pay to the average potential risk of injury.

All California businesses are classified using the Standard Classification System found in Part 3 of the California Workers' Compensation Uniform Statistical Reporting Plan - 1995 (Uniform Statistical Reporting Plan). The Uniform Statistical Reporting Plan is part of the California Code of Regulations and is approved by the Insurance Commissioner. The Standard Classification System, which contains approximately 500 industry classifications, describes groups of employers whose businesses are relatively similar. Each classification reflects the type of operations common to that group of employers. A pure premium rate, expressed as a rate per $100 in payroll, is calculated by the WCIRB for each classification. The pure premium rate is based upon loss and payroll data submitted to the WCIRB by all insurance companies, and it reflects the amount of losses an insurer can expect to pay in benefits due to workplace injuries.

Classification Examples

Classification Code
Classification Description
Pure Premium Rates*
(Jan. 2010)
Fruit Juice Mfg.
Vegetable or Fruit Processing - frozen
Breweries or Malt Houses
* Pure premium rates are amended at least annually. For the current pure premium rate, see Appendix I, Pure Premium Rates, of the Uniform Statistical Reporting Plan.

For most industries, classifications are assigned by analyzing an employer's overall California operations and identifying one classification that describes the business as a whole. This approach is based on the premise that, in general, employers within a specific industry operate in a similar manner and engage in comparable processes. The resulting classification rate reflects the average anticipated cost of medical and indemnity benefits, per every $100 of payroll, incurred by businesses within the particular industry. This approach is relatively easy for employers to administer, in that most employers use only one classification. Consequently, a one-classification system promotes the gathering of accurate payroll and loss data and enables the WCIRB and insurers to develop rates specific to a particular industry. Some industries have their own special classification procedures. See Special Industries for more information.