Alarm Company Workers' Comp: Class Codes and Your Mod

Your workers' comp cost at an alarm installation company rests on two things: payroll in the class codes your insurer assigns, and the experience mod (a score built from the company's past claims) that you inherit from the seller. A new LLC usually does not reset that mod, and the policy asks you to report the ownership change within 90 days. Clerical staff and outside salespeople can be rated separately only if their duties meet the class definition. Class codes vary by state and rating bureau, so start with the codes on your declarations page, not a list from an article. This guide is for anyone facing a mod worksheet or a first audit.

The short answer

Class codes classify the business first. A few standard exception classes, such as clerical office staff and outside salespeople, apply only if the employees' duties meet the class definition.
The seller's experience usually follows the business, so buying through a new LLC rarely starts you at a clean 1.00 mod (the average score). The policy asks you to report the ownership change within 90 days.
The premium on the policy is an estimate. The audit after the policy ends uses actual payroll and the correct classes, and commissions usually count as payroll.
Do not assume installers paid on a 1099 stay out of the premium. Texas, for example, requires an individual alarm installer to be employed by a company license holder, and other states differ.
Ladders and driving are the biggest exposures in a technician's day, so fall protection, driver standards and return-to-work planning belong in your first 90 days.

How does an alarm company's payroll map to class codes?

The table sorts the groups on an alarm company's payroll and what to keep for each. It describes how classification generally works. Your state's rating bureau and your insurer decide the actual codes.

Payroll groups at an alarm installation company
Employee group	What they do	How classification generally works	Records to keep
Field installers and service technicians	Mount panels, sensors and cameras, run cable through attics and walls, drill, test circuits and batteries, program systems	Usually the business's governing class, which the insurer assigns from your operations	Payroll by employee, and time by class if anyone works in two classes
Outside sales and consultants	Visit customers and assess security needs, paid partly or wholly by commission	Some manuals treat outside salespersons as a standard exception, but only if duties fit and the governing class does not already include them	Job descriptions and commission records, and proof they do no installation work
Office, scheduling and billing	Calls, invoices, warranties, estimates	The clerical exception applies only if the work area is separate and not exposed to operating hazards	A floor plan or description of the separate area
Drivers and stockroom staff	Move stock, deliver equipment, work in the warehouse	Some manuals include drivers in the governing class and treat commercial drivers separately in others	Duties and time
Owners and officers	Run the company, sometimes in the field	Whether they are covered, can elect out or must be included varies by state and entity type	Written confirmation from the carrier
Uninsured subcontractors	Install under contract	Their pay can be added to your premium base at audit	Certificates and their payroll records

If you or a partner will work in the field, ask the carrier whether owners, officers or LLC members can be included or excluded in your state and entity type, and which class that payroll would go in. Get the answer in writing before the policy binds.

Which class code applies to an alarm installer?

Your insurer assigns it, and it varies by state and rating bureau, so no article can name yours. What you can do is check the code against what each group of employees does. States that use the National Council on Compensation Insurance (NCCI) follow its manual, while states with independent bureaus, such as California, New York, Pennsylvania and Massachusetts, publish their own codes and rules. In Massachusetts, for example, the rating bureau lists burglar and fire alarm installation under one class. That is one state's rule, not a national one.

A business generally has one basic class, with more than one allowed only in narrow cases such as truly separate operations with separate payroll records. If your company also runs guard or response services, those are a different business, covered in the security guard company workers' comp guide. To check your own codes, see workers' comp class codes and class code corrections.

What happens to the experience mod when you buy the company?

The seller's experience generally follows the business. Under current NCCI rules, a change in ownership includes buying the stock or membership interests and buying the assets and taking over the operations, and the past payroll and claims usually transfer to the buyer. Buying through a new LLC usually does not start you at a 1.00 mod. Experience can be dropped only in rare cases, when ownership, class and operations all change, and the rating organization decides. If the seller was too small to qualify for a mod, a 1.00 factor applies until the company reaches the state's premium threshold, so ask for the seller's experience rating worksheet instead of assuming one exists.

What to do: report the change to your insurer within 90 days, whether or not a mod applies. NCCI accepts an online tool, a form or a signed letter. A recalculated mod applies back to the date of the change, up or down, and failing to report can be treated as evasion of the experience rating plan.

The state matters. Independent bureau states have their own rules and timing. Four states, North Dakota, Ohio, Washington and Wyoming, are monopolistic: workers' comp there must be bought from the state fund, which has its own reporting and successorship rules, so ask the fund directly. In Washington, the Revised Code of Washington (RCW) 51.16.200 can make a buyer liable for the seller's unpaid premium unless the buyer gives the Department of Labor and Industries written notice and no assessment issues within 180 days. Ohio's successorship rule can transfer a predecessor's obligations in listed situations. For the check on your own mod, see how to check your experience mod for errors and the new owner review of workers' comp.

How do payroll estimates and audits work for an installer?

In a stock or membership interest purchase, the company you now own pays any audit balance, including for payroll before closing. In an asset purchase the balance on the seller's policy is usually the seller's, though the purchase agreement decides who bears the cost, so ask counsel. The premium on the policy is an estimate, and the final premium uses actual payroll and the correct classes. Three audit points fit alarm companies:

Commissions usually count as payroll. Under NCCI's basic manual rules (the North Carolina rate bureau publishes a copy), premium payroll includes wages, commissions, bonuses and paid time off. Other states and bureaus can differ, so check yours.
Splitting one person between classes needs records. Under the same rules, an employee's pay can be split between classes only if records show actual time and pay in each. A technician who also writes estimates is the typical case.
The clerical exception has conditions. It requires a separate area and excludes work exposed to the operating hazards of the business. A back-office employee who also rides along on installs will not fit it.

See payroll estimates and surprise audit bills for the general method.

Can you pay installers as 1099 contractors?

Not safely, until you check two things: how the premium treats them and whether your license allows it. The standard workers' comp policy counts pay to the insured's own employees and also pay to other people engaged in work that could make the insurer liable. If you have no payroll records for them, the contract price may be used as the premium basis, unless you can show their employer lawfully secured its own workers' comp. State law decides who counts as a statutory employer.

Texas, for example, requires an individual alarm installer to be employed by a company license holder (Occupations Code 1702.221), and other states differ. Whether independent contractor installers are allowed under your state's alarm license is a question for the regulator and deal counsel, so do not assume a 1099 model works. The contracts, licenses and bonds guide covers licensing, and 1099 contractors and the workers' comp audit bill covers the audit side. If the seller stays on as a consultant, ask the carrier how that person's pay will be treated; the seller stays on as a consultant covers it.

What injuries drive claims, and what can you do about them?

The exposures come from the work. In a federal occupational survey of this occupation, 35% of respondents spent about half their time and another 18% more than half their time on ladders, scaffolds or poles, and 82% were in an enclosed vehicle or equipment every day. Falls, strains, cuts, shocks and crashes follow, and carriers look at your own claims.

The Occupational Safety and Health Administration (OSHA) construction standard requires fall protection at an unprotected edge 6 feet or more above a lower level. Whether a given alarm job counts as construction depends on the job, so ask your safety adviser which rules apply. Practical steps include ladder training and inspection, a rule for attic work, driver standards and a return-to-work program; see return-to-work programs and claim costs.

A hypothetical example. A technician falls from a ladder while mounting an outdoor camera and is out of work for eight weeks. Workers' comp pays medical costs and wage replacement, and the claim, which in this example totals $60,000, stays in the company's experience for several years of future mods. A fall before closing would usually travel with the business into your mod, and a fall after closing is yours from the start. Look at open claims and recent large claims on the seller's loss runs before you trust the mod you inherited.

What should you do in your first 90 days?

Pull the declarations page for every state and list the class codes the carrier used.
Write a one-line description of what each employee group does and compare it to the codes.
Report the ownership change to the insurer within 90 days, and confirm whether the filing goes to NCCI, to your state's bureau or to a state fund.
Set up time records for anyone who works in two classes, and ask for payroll by group for the last three years and the last audit result.
Collect certificates from any subcontractors, and ask counsel about the 1099 question under your license.
If you change payroll providers, avoid a gap by following changing payroll providers without a workers' comp gap.

Morrow can help prepare the information for your insurer or rating bureau, but the bureau decides the mod and the insurer decides the classes. For the core program around this line, see the insurance after you buy guide, and for what moves price overall, see the cost drivers guide.

Keep reading

Frequently asked questions

What workers' comp class code does an alarm installer fall under?

It depends on the state and the rating bureau, and the insurer assigns the code. Massachusetts's bureau lists burglar and fire alarm installation under one class, but that is one state. Check the codes on your declarations page against what each group of employees does.

Does buying the company through a new LLC reset my experience mod?

Usually not. Under NCCI rules an asset purchase where you take over operations is a change in ownership, and the seller's experience generally transfers. Partial purchases, rare exclusions and independent bureau states can differ. You should report the change to your insurer within 90 days. The rating organization decides, and it can drop the seller's experience only in rare cases where ownership, class and operations all change.

Do my sales reps and office staff have to be rated the same as installers?

Not always, but only if their duties meet the standard exception definitions, such as a separate clerical area or outside sales with no installation work. The insurer and auditor decide, so keep job descriptions and records that support each case.

Do I need workers' comp if my installers are 1099 contractors?

Possibly. The policy can count pay to uninsured subcontractors in the premium base, and some state alarm licenses require installers to be employees of the licensed company. Ask your broker, the regulator and deal counsel before you rely on a contractor model.

What should I look at first on the seller's loss runs?

Look for open and recent large claims, especially falls and vehicle crashes, since claims before closing usually travel with the business into your mod. Ask whether any open claim can be closed or reserved more accurately.

References

Just bought a business? Get your insurance reviewed.

Send Morrow the declarations pages, loss runs and key contracts you inherited. Morrow can review them against the business you bought, flag gaps and request quotes where it makes sense. Any new terms depend on carrier underwriting.

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This article is general information, not legal, tax or financial advice, and not a coverage determination. Coverage depends on the actual policy wording, carrier underwriting, your purchase agreement and your contracts. Ask your attorney and accountant about deal and legal questions.

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