All Washington businesses insured by Workers’ Compensation administered by the Department of Labor and Industries (L&I) pay premiums based on rates that vary by “risk classification.” L&I has identified over 300 risk classifications, which they use to reflect the estimated cost of insuring work in each particular class. Each year, L&I updates the base premium rates for each risk classification, which vary significantly from class to class. For example, a contractor might pay $0.15 per hour for administrative work, but $2.50 per hour for excavation work.
L&I assigns different risk classifications to each business for the purpose of reporting its employee’s hours worked. Once assigned, the business can report hours to L&I under the rates for that risk classification. It is the business’ responsibility, however, to accurately report hours. If L&I finds incorrectly reported hours, it will issue a Notice and Order of Assessment for the difference between the premium paid and the amount that should have been paid, plus civil penalties of up to twenty percent (20%) and interest at a rate of one percent (1%) per month.
Businesses reporting hours under multiple risk classifications can avoid costly mistakes when reporting hours for Workers’ Compensation by following these steps:
1. Identify and understand all your risk classifications.
L&I provides an annual notice of the risk classifications assigned to each business. Those risk classifications are also available under the business’ online account, which you can search here by selecting “Workers’ Comp Rates.”
Carefully review each of your risk classifications, which you can search here. Pay special attention to the type of work that falls within each classification. Do not rely on your business’ job descriptions – which can be misleading – to classify work.
For example, the risk classification for a construction superintendent / project manager position excludes anyone at a construction site who directly supervises work, performs manual labor, operates or repairs equipment, or delivers supplies or equipment. If a project manager’s duties include any of these or other excluded activities, all project hours are reportable in the highest risk classification applicable to the construction project.
If you believe that your employees perform work that does not fall into any of the risk classifications assigned to your business, contact your account manager.
2. Identify whether each risk classification is a basic classification, standard exception classification, or special exception classification.
Many employees work in multiple risk classifications. Whether a business can report those hours under more than one risk classification depends on how the risk classification is categorized.
Basic risk classifications are based on the nature of the business and the various types of labor it normally involves. An employee’s hours can typically be divided between two or more basic classifications if the employer maintains appropriate records. For example, if an employee performs work on a road and an approach to a bridge, the hours could be divided between each general classification.
Standard exception classifications are administrative in nature, which are specifically identified in WAC 296-17-31018(2), and the premiums are generally lower. However, if the employee has duties outside of the standard exception classification – even for a short period of time – all the employee‘s hours must be reported in the higher rated classification that applies to those duties. An employee’s hours cannot be divided between a standard exception classification and any other classification. For example, an administrative assistant’s hours cannot be reported as administrative staff working in a business office if that employee also conducts warehouse inventories.
Special exception classifications include positions such as construction project manager, construction estimator, and permanent shop operator and other risk classifications identified in WAC 296-17-31018(3). An employee’s hours can be divided between a special exception classification and basic classification under certain conditions. Review WAC 296-17-31018(3) and the risk classification carefully to understand the conditions under which the risk classifications may be divided. For example, a project manager’s hours can only be divided with another risk classification for work performed under a completely separate project.
3. Review your quarterly reports before submitting them to L&I.
Many businesses rely on their accounting software to report hours to L&I. Businesses can get into trouble when they do not review the reports because most accounting software does not recognize the specific rules for each risk classification. Reviewing your hours is particularly important when dividing hours between risk classifications.
The Notice and Order of Assessment becomes final if L&I does not receive a request for reconsideration or appeal within thirty (30) days. Although each case is different, we have had success in getting assessments reduced by up to 88% and saving our clients tens of thousands of dollars. Please contact Matt Paxton at Chmelik Sitkin & Davis, P.S. if you receive a Notice and Order of Assessment or have questions about Workers’ Compensation.