Child Care Workers' Comp After a Sale: Codes, Audits

Workers' compensation at a child care center is priced from payroll and a class code, which the insurer assigns under your state's rating rules, and the seller's claim history usually follows the business to you. The class code varies by state and by rating bureau, so no single code is right for every center. This guide is for a new owner who needs to check the class on the policy, keep payroll accurate for the audit, handle the cook, the driver, visiting instructors and your own pay correctly and report the ownership change on time.

The short answer

Class codes for child care vary by state and by bureau, so confirm the code on your policy with your insurer rather than copying one from another center.
The premium on the policy is an estimate. The final bill comes from audited payroll, so records matter more than the estimate.
Pay to uninsured instructors and substitutes can be added to your payroll at audit.
In most states the policy generally requires you to report an ownership change within 90 days, and the seller's experience modification usually follows the business. Ohio and Washington have their own rules that can reach a buyer.
Ask your insurer in writing how your own pay as owner or director is counted.

Do child care centers have a lot of workers' comp claims?

Not by the industry numbers, though the work is physical. The U.S. Bureau of Labor Statistics (BLS) 2024 data for child day care services shows a total recordable case rate of 1.9 per 100 full-time workers against 2.3 for private industry, even though the BLS flags childcare workers as an occupation for high injury rates. One figure covers an industry and the other an occupation across many employers. Do not read either as a prediction for your center.

The duties explain why claims happen, even though insurers generally classify the business as a whole, with a few exceptions. The BLS lists supervising children, preparing meals, helping with hygiene, changing diapers and organizing activities. In a U.S. Department of Labor occupational database (see the references), 48 percent of surveyed childcare workers said they spend about half their time standing, 38 percent about half their time bending or twisting, and 33 percent about half their time kneeling, crouching, stooping or crawling. Expect back, shoulder and knee strains and slips and falls. Staff illness from exposure to sick children is a business issue too.

What class code applies to a child care center?

It depends on your state. Workers' compensation rates are set by class code, and the National Council on Compensation Insurance (NCCI) covers many states while a group of states use independent bureaus. California, Pennsylvania and Delaware use classification systems that differ from NCCI's. The table is a map of how much the label varies, not advice on which code you should have.

Reported code families for child care, by state and bureau (examples only)
Where	Code family reported	Where the label comes from
Some NCCI states	8869, described as child care center with all employees including clerical, salespersons and drivers	Third-party class lookup site, not a bureau. Confirm with your insurer
Massachusetts	8868 for administrators, teachers and clerical staff and 9101 for nonprofessional school employees	State bureau classification index
Pennsylvania and Delaware	0891, child care or early education	Third-party class lookup site, not a bureau. Confirm with your insurer
Other states	Other codes and labels apply, including in states not shown here, such as Texas and New York	Ask your insurer which class the bureau uses and read its description

The Massachusetts bureau listed class 8868 at a base rate of $0.56 per $100 of payroll effective July 1, 2024. That is a bureau figure for one state and date, not what a center pays, and rates change. Premium is generally a state-approved rate per $100 of payroll for the class, times payroll, with the mod applied. See workers' comp class code and workers' comp class code corrections.

In North Dakota, Ohio, Washington and Wyoming, workers' compensation is bought from the state fund and private insurers cannot sell it. Rules, forms and sometimes the way premium is figured differ from the NCCI material in this guide. Buyers in Ohio and Washington should ask about successor rules (rules that can make a buyer responsible for a seller's unpaid premium). The state fund policy usually leaves out employers liability, the cover for lawsuits by injured employees, so ask where to buy stop gap cover (a separate policy that fills that hole). Wyoming's coverage rules differ for some employers, so confirm whether a center must be covered.

Texas is an NCCI state where most private employers may choose not to carry workers' compensation. An employer that opts out must still report its status to the state's workers' compensation division, and an employee injury could lead to a lawsuit without the protections coverage usually gives, so ask your attorney before skipping it. Even there, a lender or landlord may still require it, so check your loan documents and lease.

How do I keep the payroll estimate and the audit under control?

The policy premium is an estimate. After the term ends, the insurer sets the final premium using actual payroll and the correct classes, and you pay a balance or get a refund. Under the standard NCCI policy the insurer can audit your records during the policy and for up to three years after it ends. See premium audit. For a buyer with debt service, an audit balance after the first year is an unplanned cash call, so set the payroll estimate from your own staffing plan, not the seller's last year.

In the North Carolina Rate Bureau's Basic Manual, premium payroll generally includes wages, bonuses, vacation, holiday and sick pay and the value of meals given as pay. The extra premium portion of overtime is excluded only if your records show it separately by employee. Other states and bureaus differ, so ask your insurer which manual applies. A center has payroll features that make estimates drift, and each one needs a record that proves it:

Meals given as pay. If a cook eats on the job as part of pay, the value of the meals can count. Record what is provided and what it is worth.
Ratio-driven overtime. When a teacher quits, others cover the room. Keep time records that show overtime separately by person.
Seasonal and summer hires. One large operator reports higher enrollment in spring and fall and lower enrollment in summer and around year-end holidays, so payroll moves through the year. Keep hire dates, hours and pay.
Drivers on pickup routes. Record their hours and duties apart from classroom time.
Cooks, maintenance and the director. Some states put them all in one child care class and some split professional from other staff, so ask your insurer which applies and keep job titles, hours and pay for each person. Under the North Carolina Rate Bureau's manual, for example, an employee can be split between two classes only when records show actual time and pay in each. Without them, all of that pay goes to the higher rated class.

A hypothetical example. A center's policy estimates $800,000 of payroll in one class at an illustrative rate of $1.00 per $100. At audit the actual payroll is $950,000, because after-school hours and two new hires were not in the estimate. The extra $150,000 of payroll adds about $1,500 of premium before the mod. In a state that splits classes, the auditor may also find a cook and a part-time driver whose duties differ from the class described, and the insurer may reassign classes by endorsement. The numbers are illustrative only. The lesson is that records, not the estimate, decide the final bill. See payroll estimates and audit bills and pay-as-you-go workers' comp.

What about visiting instructors, substitutes and other uninsured workers?

Some centers bring in music, sports, language or yoga instructors and substitute teachers, sometimes paid on a 1099 form. The workers' compensation premium base includes pay to other people engaged in work that could make the policy liable. If an instructor has no workers' compensation of their own, an auditor can treat the payments as if the person were your employee, classified under your code and mod. Where records are missing, manuals can assign a share of what you paid the outside firm as payroll, so ask your insurer how your state's manual treats uninsured instructors. How an auditor treats a visiting instructor also depends on your state's rules on who is an employee and on whether the instructor's own employer secured workers' compensation.

Protect yourself by collecting a certificate showing workers' compensation from each outside firm, or by checking the instructor's own coverage. A certificate shows a policy exists. It is not the policy. See 1099 contractors and workers' comp audits for a new owner and workers' compensation on a certificate.

Your own pay as owner or director is a related question. Whether an owner must be covered, can opt out or has payroll counted at a set minimum depends on the state and your entity type, and if you pay yourself in a way that does not run through payroll, ask how the carrier counts it for premium.

How do I report the sale to the workers' comp carrier?

These steps describe NCCI states and several independent bureau states. In North Dakota, Ohio, Washington and Wyoming the state fund's own successor rules apply instead. Ohio and Washington can hold a buyer responsible for some of a seller's unpaid workers' compensation premium, so ask the state fund and deal counsel before closing.

Report within 90 days. The standard policy generally requires the employer to report an ownership change to its insurer within 90 days. Under NCCI rules a change includes buying stock or membership interests, buying assets and taking over operations, and forming a new entity that succeeds the old one. Report it on the ownership information form, through the online tool or by a signed letter. Some states, including North Carolina, Pennsylvania and Delaware, use their own bureau routes.
Expect the rating organization to decide the mod. The rating organization, not your insurer or broker, decides how the change affects the mod. Under current NCCI rules a recalculated mod applies back to the date of the change, up or down. Some independent bureaus time it differently (New York's manual, in its 2019 edition, ties it to when you report), so ask your insurer which rules apply in your state. Late reporting can be treated as an attempt to evade the mod.
Check whether the center has a mod at all. Experience usually transfers when you buy all of the operations. Small centers may have none if they have not reached the state's minimum premium, in which case a factor of 1.00 applies.

If you are adding a second center, businesses with more than 50 percent common ownership are combined for experience rating, so see reviewing your experience mod for errors. A professional employer organization (PEO) is another way to carry coverage, with its own transition rules. See PEO vs your own workers' comp.

The other policies to confirm are in insurance after you buy a child care center. A Morrow review can check the class and payroll estimate on the policy you inherited. Any new terms depend on carrier underwriting.

Keep reading

Frequently asked questions

What workers' comp class code does a child care center use?

It depends on the state and rating bureau. Examples reported include 8869 in many NCCI states, 8868 with 9101 in Massachusetts, and 0891 in Pennsylvania and Delaware. Your insurer assigns the code, so confirm it on your policy.

Will the seller's experience mod follow me?

Usually yes if you buy all the operations. The rating organization decides, and under NCCI rules a recalculated mod can apply back to the date of the change (some bureaus differ). Report the change to your insurer within 90 days in most states. In Ohio and Washington the state fund's rules apply instead.

Do I have to pay workers' comp on part-time teachers and substitutes?

Premium payroll generally includes wages for part-time employees. Pay to uninsured substitutes or instructors can also be added at audit, so collect certificates or put them on payroll.

Can the insurer change my class code at audit?

Yes. If the auditor finds the work is not described by the class on the policy, the insurer can assign the proper class and rate by endorsement, which can change the final premium.

Does Texas require child care centers to carry workers' comp?

Texas private employers can choose to carry it in most cases. An employer that opts out must report its status to the state and may face injury lawsuits without the usual protections, and lenders and landlords may still ask for coverage, so check your loan, lease and licensing paperwork and ask your attorney.

Do I have to put myself on the workers' comp policy as the owner?

It depends on the state and your entity type. Some owners must be covered, some can opt out, and some have payroll counted at a set minimum or cap. Ask your insurer in writing how you are treated.

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.

Request a review Check a contract

Morrow · 25 New Chardon Street, 4th Floor, Boston, MA 02114

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.

Workers' Comp, Payroll and Class Codes for a Child Care Center