Bakery Workers' Comp After a Sale: Class Codes, Mod

Yes, the seller's claims history usually follows you. Bakery workers' comp premium is a state-approved rate per $100 of payroll for the class your insurer assigns (applied to each $100 of your payroll), times your experience mod (a multiplier built from past claims, where 1.00 is average and above 1.00 raises premium). Many policies require you to report the ownership change within 90 days, and the audit after the policy ends sets the final bill. This guide is for new owners of retail and wholesale bakeries. It follows National Council on Compensation Insurance (NCCI) rules, with notes on independent-bureau states such as New York and California.

The short answer

Class codes classify the business, not each job. They vary by state and rating bureau, and the insurer assigns them, so take any code to your insurer as a question.
Keep payroll by job group (production, counter, drivers, office). A second class applies only in limited cases, and one worker's pay can be split between classes only with records of actual time and pay.
A new LLC does not reset the mod to 1.00. Under NCCI rules the seller's experience usually follows the business, and excluding it is rare.
Many policies require you to report an ownership change to your insurer within 90 days, so check yours. A workers' comp policy cannot be transferred without the insurer's written consent, so an asset buyer needs a policy in force at closing.
Freelance decorators and 1099 drivers can show up on the audit if they are uninsured, and a 1099 label does not settle whether someone is an employee. Collect certificates and ask how your state decides.

How do bakery jobs map to class codes?

Class codes classify the business, not each employee's job, so the insurer picks one governing class and only a few exceptions apply. One public lookup site lists a bakery class (2003) and a retail store class (8017) in several states. California, Delaware and Pennsylvania use their own classification systems, and other independent-bureau states (for example Michigan, New Jersey and New York) have their own manuals. The insurer assigns the code, so take any code to your insurer as a question. The table shows each job group and what to ask.

Bakery job groups and the class question for each
Job group	What the work involves	What to ask your insurer
Production bakers	Mixing, shaping dough, loading and watching ovens, around heat and heavy lifting	Which class is governing for the bakery, and what does the state manual's scope say about production work?
Cake decorators	Finishing custom orders, often paid by the cake or the hour, sometimes freelance	Does the governing class cover decorators, or does your state's manual allow a separate class? Do not assume. If any are freelance, see the contractor section below.
Counter and sales staff	Serving customers, handling cash and tips	A second class is allowed only in limited cases, such as truly separate operations that are physically separated with separate payroll records, or a qualifying mercantile situation. Does your bakery qualify?
Delivery and route drivers	Wholesale routes and cake delivery, sometimes in the employee's own vehicle	Some class titles name salespersons and drivers. Does your state's manual include your drivers? Keep their payroll separate in your records.
Managers and owners who also bake	Production work plus supervision	The business is classified as a whole, so ask which class covers a manager who also bakes. Owner and officer coverage rules vary by state and entity type.
Office and bookkeeping	Clerical work away from the ovens	In the North Carolina edition of the NCCI manual, a clerical class (8810) applies only if the bakery's own class does not already include clerical work, the duties meet the definition and the clerical area is separated from operating hazards. Other editions may differ. A manager who also bakes should ask.

An employee's pay can be split between two classes only if your records show the actual time and pay in each. Estimates and percentage splits are not allowed, and without proper records all of that employee's pay goes into the highest-rated class involved. A bakery-cafe with seating may be looked at under a restaurant-type class, so ask. See workers' comp class code corrections and the class code glossary entry.

What counts as payroll, and how does the audit work?

Your workers' comp bill starts as a deposit based on estimated payroll. After the policy ends, the insurer audits actual payroll and class codes, and you pay a balance or get a refund. Under the standard NCCI policy the insurer may audit for up to three years after it ends, so keep payroll records.

Included in payroll. In NCCI's Basic Manual (the North Carolina edition is the one cited here), payroll includes wages, commissions, bonuses, holiday, vacation and sick pay, and the value of meals given as pay. Other states and bureaus may differ.
Usually excluded. Optional tips are generally excluded, but automatic gratuities such as a service charge on a large custom order are treated differently, so ask your insurer.
Overtime. Bakeries run early shifts and holiday rushes. In the North Carolina edition of NCCI's manual the extra premium portion of overtime pay is excluded only if your records show overtime separately by employee, so ask your payroll provider to report it that way.

Payroll can jump when a bakery adds an overnight shift, a wholesale route or holiday and wedding season hires. Send the insurer a revised payroll estimate when the schedule or headcount changes, and keep payroll by job group so a class split is supportable. See payroll estimates and surprise workers' comp audit bills and the premium audit glossary entry.

Who counts as an employee: owners, decorators, drivers and helpers?

The Bureau of Labor Statistics (BLS) reports that 10 percent of bakers are self-employed, so owners who bake are common. Whether an owner or officer must be covered or can be excluded varies by state and entity type, so ask your insurer and attorney. Ask the insurer in writing how it treats each owner's pay (included, excluded or a stated minimum), because that choice changes the premium base and the audit.

Freelance decorators, event helpers and delivery drivers on 1099 forms raise a different issue. The standard policy counts pay to anyone engaged in work that could make the insurer liable, and for an uninsured subcontractor with no payroll records the contract price may be used as the premium basis. That does not apply if the person's own employer lawfully secured workers' comp, and a certificate is the usual proof. Separately, a worker paid on a 1099 who is an employee under your state's test can be added to payroll at audit, whatever the paperwork says. Ask your attorney and insurer how your state decides. See 1099 contractors and the workers' comp audit bill.

Whether you must carry coverage at all is also a state question. Texas lets most private employers choose not to carry it, and they must still report that status. Wyoming limits mandatory coverage mainly to listed hazardous industries, so check your state. In North Dakota, Ohio, Washington and Wyoming, private insurers cannot sell workers' comp, so insured coverage comes from the state fund.

Does the seller's claims history follow you to the new company?

Do not assume a new company starts fresh. A buyer who keeps the same ovens, recipes and crew has changed the owner and little else, and under NCCI rules the seller's claims and payroll history usually follows the business, whether you bought stock or bought assets and took over the operations. A new limited liability company (LLC) does not reset the mod to 1.00. Dropping the seller's experience takes all three of these: a near-complete change of owners, a change in operations big enough to change the governing class code, and a change in the work process and hazards. A bakery that keeps baking the same goods rarely shows that.

Report within 90 days. Put it on the same calendar as your first payroll review. Many policies, including the standard NCCI policy endorsement, require this whether or not a mod currently applies, using the ownership information form, the online tool or a signed letter.
Late reporting is not free. The rating organization may treat a late report as an attempt to avoid the seller's mod (called mod evasion) and correct the mod. In NCCI states a recalculated mod runs back to the date of the change, whether it goes up or down, and the manuals set no fixed fine.
The policy does not simply move. It cannot be transferred without the insurer's written consent, so an asset buyer needs a policy effective at closing. In a stock purchase the same insured stays, along with any audit balance, so the purchase agreement should say who bears it.
Professional employer organizations. If the seller used a professional employer organization (PEO), do not assume its coverage continues for an asset buyer's new company. Ask the PEO in writing, and plan on your own PEO agreement or policy effective at closing unless it confirms otherwise. A stock buyer should read the agreement's change-of-control terms.
State fund states. In North Dakota, Ohio, Washington and Wyoming the fund's own rules apply. Ohio and Washington have successor rules that can reach a buyer for the seller's unpaid amounts, so ask deal counsel and the fund before closing.

If your bakery is in an independent-bureau state, read the bureau's own rules and ask your insurer which bureau rates your policy. Bureau rules change, so confirm the current version.

New York. The manual, as published on a page effective January 1, 2019, uses the same 90-day report and the same three-part exclusion test described above. Report within 90 days and a recalculated mod runs from the date of the change. Report later and it runs from the next rating effective date after the earliest notice. Reporting late may still be treated as mod evasion.
California. A change counts as material only if the prior owners hold less than half afterward, and after a material change the seller's experience carries to the buyer unless a material change in employees or operations is shown.

See how to check your experience mod for errors after an acquisition, what insurance you need after you buy a bakery and what drives insurance cost for a bakery.

What does a mixer injury after closing do to your mod?

A hypothetical example. Two months after closing, a new hire reaches into a mixer bowl while the agitator is still running, because the bowl guard was bypassed during a rush. The claim goes to workers' comp. Two things follow. First, the owner asks whether the seller kept guarding and maintenance records, because the Occupational Safety and Health Administration (OSHA) has a standard for bakeries that addresses mixer guarding and shutoffs, and the insurer or an inspector may ask for the same records. Second, the claim enters the experience period used for future mods, generally about three years of payroll and loss data, so it may affect rates for several renewals on top of any claims inherited from the seller. None of this assumes a cost. It shows why guarding, training and records matter to the premium as well as to safety. The bakery standard's text is old, so confirm current OSHA requirements.

How do you keep a bakery's payroll and classes clean?

Before closing, ask for the current policy, the class codes and payroll by class, the last audit and the mod worksheet.
Match the job groups in the table above to your real payroll register, and send any differences to the insurer in writing.
Decide with your attorney and insurer how owners are covered, and how freelance decorators and drivers are documented.
Calendar the 90-day ownership report, and review payroll quarterly against the estimate.

For your model, treat the estimated premium as a deposit. Growing payroll can produce a balance due after the audit, so carry a cushion in the cash flow forecast and tell your lender and investors if you add a shift or a route.

Send the policy, payroll register and mod worksheet and Morrow can check them against your job groups and flag mismatches. Any change depends on the insurer and the rating bureau. For the other lines, read coverage gaps new bakery owners should check and the workers' compensation overview.

Keep reading

Frequently asked questions

What workers' comp class code applies to a bakery?

It depends on your state, the rating bureau and what your employees actually do, and the insurer assigns it. One public class lookup lists a bakery class and a retail store class among the codes a bakery may see, and California, Delaware and Pennsylvania use different systems. Ask your insurer which class governs and why.

Does buying a bakery through a new LLC give me a fresh experience mod?

Generally no. Under NCCI rules, stock purchases and asset purchases where the buyer takes over the operations are both ownership changes, and the seller's experience usually transfers. Dropping it is rare and needs a near-complete change of owners plus a change in operations and in the work process and hazards.

Do I need workers' comp if I only have a few part-time counter employees?

State law decides. Most states require coverage for employees, with rules that differ by size and type of worker, and Texas lets most private employers choose not to carry it. Check your state's rule and your lender's loan agreement.

Are tips counted in payroll for my premium?

In NCCI's basic manual, optional tips are generally excluded, while wages, bonuses and the value of meals given as pay are included. Automatic gratuities are treated differently, and other states may differ, so ask your insurer.

What happens if I forget to report the ownership change?

The rating organization may treat it as mod evasion and correct the mod. Under current NCCI rules a recalculated mod applies back to the date of the change, up or down. The manuals set no fixed fine. New York's manual, as shown on a 2019 page, times this differently, and other bureaus may too, so confirm with your insurer which rule applies.

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.

Buying a Bakery? Workers' Comp, Class Codes and the Seller's Claims History