Dry Cleaner Workers' Comp: Class Codes and Audits

Workers' compensation for a dry cleaner is generally priced as a rate per $100 of payroll in the class your insurer assigns, then adjusted by an experience mod (a multiplier built from the business's past claims) that usually follows the business to you. In many states that follow National Council on Compensation Insurance (NCCI) rules, a plant is commonly rated under 2586, laundry under 2585 and a retail store under 2589, but numbers differ by state, the insurer assigns the code and your state's rulebook controls. This guide is for the buyer of a plant, a drop store or a store with route delivery who wants to check the class, the payroll estimate and the 90 day ownership report before the first audit.

The short answer

Class codes classify the business, not each worker's job. A plant, a collection-only store and a store with route delivery can be treated differently, and which code a store that cleans on site takes can vary, so ask the insurer how yours is classed.
The seller's mod usually follows the business, whether you bought the stock or bought the assets and took over operations. Report the change to the insurer, generally within 90 days, because a recalculated mod can apply back to the date of the change.
The premium is an estimate. An audit can follow for up to three years after the policy ends, and independent tailors or couriers can end up on the bill if they carry no coverage of their own.
Perc exposure is an occupational health question with long-latency risk. Perc is a recognized health hazard, and a claim can surface years after exposure. How a late claim is split among owners and policy periods after a sale is a question for the carrier and your attorney.

How does a dry cleaner's payroll get classified, role by role?

A class code describes the employer's business in a state, not each worker's job. Premium is generally a state-approved rate per $100 of payroll for each class, times the payroll in that class, with the mod on top. The useful question for a dry cleaner is which class describes your store and whether any operation falls outside it. The table links each role to its typical exposure and the payroll question it raises.

Dry cleaner roles, exposures and the payroll question
Role	Typical injury exposure	Payroll and class question
Counter clerk: taking in, tagging and handing out orders	Standing, lifting bagged garments, cash handling	Usually part of the store's governing class
Machine operator and spotter	Solvent contact, heat, loading and unloading, repetitive motion	Core plant payroll; perc exposure records matter
Presser and finisher	Steam and heat burns, repetitive motion	Core plant payroll
Alterations tailor	Needles, repetitive motion	Employee or independent contractor? Uninsured contractors can be charged at audit
Route driver	Vehicle accidents, lifting	May be inside the dry cleaning class or treated separately, depending on the state's rules
Maintenance worker, or you servicing machines	Caught-in hazards, boiler lines, electrical work	Highest machinery exposure; lockout and tagout training matters, and your own pay is an owner coverage question
Office staff	Low	A clerical exception may apply only if duties and work area meet the class definition

Which class code will a dry cleaner get?

The codes in the lead are the pattern in many NCCI states, with different numbers elsewhere. Which of these a store that cleans on site takes can differ by bureau: Massachusetts puts a store on the same premises as the cleaning into the plant class, and other states' manuals can list a separate retail store class. Confirm yours with the insurer's classification letter and the state's bureau, not an online list.

Massachusetts, which has its own bureau, shows how the pieces can fit. Its dry cleaning or dyeing plant class (2586) lists route supervisors and drivers, sorting, cleaning, solvent recovery, pressing, repairing and any cold storage the business maintains, and it includes collecting or distributing stores on the same premises as the cleaning.

There, collecting stores with no cleaning on site are rated under the retail store class, and combined laundry and dry cleaning at one location is rated under both 2585 and 2586. California, Pennsylvania and Delaware use classification systems that differ from NCCI's, so NCCI material does not carry over directly.

What this means for you: a business usually has one governing class. Pay can be split between classes only where the records show actual time and pay in each (an estimate or percentage split is not accepted), or where operations are truly separate, physically apart and on separate payroll records. Ask the insurer how a delivery route, a laundry counter or a collection-only location would be handled, and keep payroll records that support the answer. The glossary entry on workers' comp class codes explains the mechanics, and workers' comp class code corrections covers fixing a wrong one. You cannot move a person into a cheaper class by changing a job title.

Will the seller's mod and claims history follow me?

Usually yes. Under NCCI rules a purchase of stock or membership interests, or of assets with the operations taken over, counts as an ownership change, and past payroll and claims history generally transfer, so a new LLC does not start the mod at 1.00. Dropping the seller's experience is rare. Small stores may have no mod at all, so ask whether yours has one.

Report the ownership change to the insurer within 90 days, whether or not a mod applies. NCCI states accept its ownership information form, its online ownership submission tool or a signed letter on company letterhead. Some states, including North Carolina, Pennsylvania and Delaware, use their own bureau's route, so ask the insurer which applies. The rating bureau decides the effect, and under NCCI rules a recalculated mod applies back to the date of the change, up or down (New York ties the date to when the change was reported). See reviewing the experience mod for errors and the glossary entry on the experience modification rate.

A hypothetical example. Two months after closing, a presser is burned by a boiler line and misses six weeks of work. The seller's mod was already 1.20, and the buyer, who formed a new LLC to buy the assets, has not yet reported the ownership change. The claim lands on the new policy and will generally enter the experience used for later mods, and the bureau can still issue a recalculated mod back to the closing date. The practical questions are the ones to ask before closing: what the mod worksheet shows, whether lockout and tagout and training records exist, how return to work will be handled, and when the report is due.

How do payroll estimates and audits work for a store like mine?

The premium on a dry cleaner's policy is an estimate built from the payroll you project for each class. After the policy ends, the insurer reconciles it to actual payroll, so a store that adds a delivery route, a second counter or extra pressers mid-year may owe a balance, and one that loses staff after closing may get a refund. The insurer and the rating organization can audit your records during the policy and for up to three years afterward. Premium payroll includes wages, commissions, bonuses and paid time off, with state exclusions. Pay in a store like this is likely to be mostly hourly, so keep timecards and a payroll report by role and by location.

Two situations deserve a closer look in your first year. First, independent tailors or couriers: the audit base includes pay to anyone engaged in work that could make the insurer liable, so an uninsured contractor can be classified as if the workers were your employees. See 1099 contractors and the workers' comp audit. Second, you: if you work in the store, ask the insurer whether your own pay is included or excluded and how that depends on your entity type and your state. Do not assume an owner sits outside the audit, and do not assume the seller's treatment carries over to your new entity.

Who bears an audit balance after a stock or asset purchase, and what a payroll provider change does, are covered in payroll estimates and audit bills, changing payroll providers and the workers' comp review. If the class or payroll split looks off, Morrow can review the policy and audit paperwork with you.

What about perc exposure and claims that surface later?

Perc is the hazard that defines the trade. The U.S. Department of Health and Human Services considers it reasonably anticipated to be a human carcinogen, the U.S. Environmental Protection Agency (EPA) considers it likely to be carcinogenic to humans, and the International Agency for Research on Cancer considers it probably carcinogenic to humans. EPA also says newer technologies and practices have substantially reduced occupational exposure, and none of this says that any one store harms its workers. The federal Occupational Safety and Health Administration (OSHA) sets an exposure limit for perc in the air, and state plans may differ, so ask your insurer and safety consultant what monitoring they expect.

For a buyer the insurance question is timing. A disease with a long latency can be reported years after the exposure, and occupational disease rules, notice periods and limitation periods vary by state. How a late-surfacing claim is allocated among policy periods and owners after a sale is not settled by general rules, so ask the carrier and your attorney, and keep records. Written hazard communication, safety data sheets and lockout and tagout training are the records an insurer may ask about.

Which states change the rules?

Workers' comp rules differ by state. Four states (North Dakota, Ohio, Washington and Wyoming) require the policy to come from the state fund, Texas lets most private employers choose not to carry it, and eleven states use independent rating bureaus whose ownership reporting routes and manuals can differ from NCCI's. California, Delaware and Pennsylvania also use their own classification systems. Ask the insurer which bureau's rules govern your class and reporting deadline, and confirm any state successor rule with deal counsel before closing. The general state-by-state rules are in the workers' comp review; cost context is in the workers' comp cost guide and what drives dry cleaner insurance cost.

Keep reading

Frequently asked questions

What workers' comp class code does a dry cleaner use?

In many NCCI states, 2586 is commonly seen for a plant, 2585 for laundry and 2589 for a retail store, but other states use different numbers, the insurer assigns the code and the state's manual controls. Which code a store that cleans on site takes can differ by bureau, so ask for the classification letter and check it against how your store actually operates.

Do delivery drivers need a separate workers' comp class?

It depends on the state and the class wording. The Massachusetts bureau's dry cleaning plant class lists route supervisors and drivers in its wording, but other states differ. Ask the insurer how driver payroll will be classed and keep records to support it.

Does the seller's experience mod transfer to me when I buy a dry cleaner?

Usually, whether you buy stock or assets and take over operations. Report the ownership change to the insurer, generally within 90 days, because the rating bureau decides the effect and a recalculated mod can apply back to the date of the change.

Can I treat tailors and couriers as contractors to keep workers' comp down?

Not safely without checking. At audit, pay to uninsured subcontractors can be classified as if their workers were your employees. Ask for their certificates and read your state's rules on independent contractors.

Does workers' comp cover diseases from perc exposure?

Workers' comp can respond to occupational disease claims, and the rules differ by state. How a late-surfacing claim is allocated among policy periods and owners after a sale is not settled by general rules, so ask the carrier and your attorney.

References

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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.

Dry Cleaner Workers' Comp: Class Codes, the Seller's Mod and Audits