Workers' Comp for an Equipment Rental Company: Classes and Payroll

Workers' compensation at an equipment rental company is priced by class code and payroll. As a new owner you can check four things: which jobs land in which class, whether workers paid as contractors reach your audit, the payroll estimate, and the seller's experience mod. Codes vary by state and rating bureau, and the insurer assigns them, so this guide uses Massachusetts as one worked example, not the rule for your state. It is for buyers who want to check the estimate, the audit and the ownership change report.

Which jobs at a rental company drive the workers' comp bill?

Class codes classify the business, not each job title. Still, your mix of jobs decides what the auditor sees. This table lists the usual groups and where the Massachusetts bureau's lookups put them. Use it as a map of questions for your own state and carrier, not as an answer.

The Massachusetts bureau's lookups show renting contractors' equipment without operators in class 8107 and mobile crane rental with operators in class 9534, a construction group with a higher hazard group (the bureau's measure of how severe claims tend to be). Massachusetts has its own rating bureau, so its manual is one state's example even where its rules resemble NCCI's. California, Pennsylvania and Delaware use classification systems that differ from the National Council on Compensation Insurance (NCCI), so do not carry these numbers across. See what a class code is.

Do counter staff, drivers and shop workers get their own class code?

Only in narrow cases. A few standard exception classes can sit beside the main class for clerical office staff and outside salespeople, but only when duties meet the class definition. A counter clerk who works in a showroom with inventory, or a dispatcher who walks the yard, may not qualify as clerical. A separate driver class generally applies only to a business whose main operations are not covered by its own class, so confirm how your state treats drivers.

When one person does two kinds of work, the pay can be split between classes only if records show the actual time and pay in each. This is the rule in the NCCI Basic Manual as published for North Carolina, and California and Oregon have similar records rules, so confirm your state's manual. Estimates and percentage splits are not allowed, and without proper records all of that employee's pay goes into the highest rated class involved. For a rental company, that means a mechanic who also does repair work away from the yard, or a yard worker who also runs your operated service, needs a time record, because those jobs can land in a different class.

What changes when you supply an operator or run a crane service?

The class can change. The Massachusetts lookup says operators of leased equipment other than mobile cranes are classified as if the customer's own employees performed the work, and that operators of leased mobile cranes go to the crane class. In practice that means an operated rental line can carry a different rate than your dry rental yard. A business doing both can have more than one class only for truly separate operations with separate payroll records.

Federal safety rules also attach to operated work. On construction work, crane operators must be trained, certified or licensed, and evaluated, and forklift operators must be trained and re-evaluated at least every three years. In an asset purchase, check that each operator's records are current for the new employer, and see the contracts guide. How these rules treat a rental company that supplies a machine to another employer's workers is a question for your attorney or safety consultant.

What if installers, drivers or operators are paid as 1099 contractors?

They can end up on your audit. The standard policy counts pay to anyone engaged in work that could make the insurer liable, which is how an uninsured subcontractor's pay reaches your bill. At audit, the subcontractor's charge is classified as if its workers were your employees. Where no payroll records exist, one published rule (the North Carolina edition of the NCCI Basic Manual) uses set minimum shares of the price, including 90 percent for labor only and 33 and one-third percent for a subcontractor that supplies mobile equipment with its operators. Other states and bureaus may differ.

A hypothetical example. A new owner of a yard with an event division pays two seasonal tent installers $40,000 for the year under labor-only agreements and holds no certificates of insurance or payroll records for them. If the auditor applied the 90 percent minimum, $36,000 of added payroll could be rated in the installers' class and billed on your policy. Collecting a certificate of insurance showing the contractors' own workers' compensation coverage, or their payroll records, before the work starts is usually easier than disputing the classification at audit. State tests for who counts as an employee vary, so ask your attorney before you treat drivers, installers or operators as contractors. See 1099 contractors and the workers' comp audit bill.

How should you handle payroll estimates and the audit?

The premium is an estimate. After the policy ends, the insurer sets the final premium from actual payroll and the right class codes, and you pay a balance or get a refund. The insurer can audit your records during the policy period and for up to three years after it ends. Rental payroll swings with the season: event crews and drivers work overtime in peak weeks, counter staff may earn commissions, and a yard that adds an operated crane line adds a new payroll group. Build the estimate by those groups, and keep time records for anyone who splits shop and field work.

Payroll for premium purposes includes wages, commissions, bonuses, and holiday, vacation and sick pay, and excludes items such as optional tips and severance. These inclusions come from the NCCI Basic Manual as published for North Carolina, and other states differ. Overtime pay may count only at straight time if your records show overtime separately by employee.

Update the estimate when you add routes, drivers or operated work. A low estimate raises the audit bill, and a high one ties up cash. See payroll estimates and surprise audit bills and class code corrections.

What must you do about the seller's mod and the ownership change?

Start with a call to the insurer. Then work through this list.

• Report the change within 90 days. The policy requires it whether or not the business has a mod. Under NCCI rules, buying stock, buying assets and taking over operations, a merger, or forming a new successor entity all count.
• Know who decides the mod. The rating organization, not the insurer or your broker, decides how an ownership change affects the mod, and independent bureau states such as California and Pennsylvania have their own transfer rules, so ask your carrier which applies in your state.
• Expect the seller's mod to follow you. In states that use the NCCI experience rating plan, a new company that buys all of a seller's operations does not start at a mod of 1.00. In a partial purchase, whether experience moves depends on whether the insurer can split out the data, and a small business may be below the state's premium threshold for a mod at all. Dropping the seller's experience is rare and needs a near-complete change of owners plus a change in operations and hazards.
• Know whose audit it is. A policy cannot be transferred without the insurer's written consent, so in an asset deal the buyer's company needs its own policy. In an asset deal, the audit balance on the seller's policy usually stays with the seller's named insured. In a stock deal the named insured is the company you now own, so a later audit can bill it for payroll from before closing. Either way, the purchase agreement decides who bears the cost economically, so ask deal counsel.

For the full process, see how to check your experience mod for errors.

What about PEOs, state funds and owner coverage?

Some risks sit outside the policy itself. If you use a professional employer organization (PEO) or a pay-as-you-go plan, do not assume either carries over to a new entity. Read the PEO agreement or the carrier's and payroll provider's terms, and have your own coverage and billing in place at closing. See changing payroll providers without a gap.

Four states, North Dakota, Ohio, Washington and Wyoming, run monopolistic state funds, so private insurers generally cannot sell workers' compensation there. Ask your broker or the state fund how coverage, and any self-insurance option, works in your state. Washington, for one, can make a buyer liable for the seller's unpaid workers' compensation amounts unless the buyer gives the Department of Labor and Industries written notice of the purchase and no assessment is issued within 180 days of that notice, under section 51.16.200 of the Revised Code of Washington (RCW). Ask your attorney how this applies to your deal.

Whether owners and officers must be covered, may opt out or are excluded varies by state and policy form, so ask your broker to show you in writing how yours are treated. Morrow can check class codes, the payroll estimate and the mod worksheet with you.

Keep reading

• Just Bought an Equipment Rental Company? What Insurance Do You Need?
• What Drives Insurance Cost for an Equipment Rental Company?
• Payroll Estimates and Surprise Workers' Comp Audit Bills
• Workers' Comp Class Code Corrections: Fixing a Common Overpayment
• Do 1099 Contractors Count in Your Workers' Comp Audit?
• All guides for new business owners

Frequently asked questions

What class code does an equipment rental company use?

It depends on the state, the rating bureau and what you do, and the insurer assigns the code. In Massachusetts, renting contractors' equipment without operators is one class and mobile crane rental with operators is another, but other states differ. Ask your carrier which class applies and why.

Are my counter employees clerical for workers' comp?

Maybe not. In the Massachusetts example, the clerical class requires an office physically separated from operating areas and excludes areas where inventory is kept, so a showroom counter may not qualify. Check your state's rule and give the insurer a floor plan.

Do I inherit the seller's experience mod?

Usually yes. Under NCCI rules, experience generally transfers on a change in ownership, including an asset purchase into a new company. A buyer that takes over all of the seller's operations does not start at 1.00, though a partial purchase or a small business can differ. Check your mod worksheet for errors.

What happens if I hire installers as 1099 contractors?

If they have no workers' compensation of their own and no records, an auditor can classify their pay as if they were your employees, using minimum shares of the contract price under some manuals. Collect certificates before work starts, and ask your attorney about worker classification.

How soon must I tell my insurer about the sale?

The standard policy requires reporting an ownership change within 90 days, whether or not you currently have a mod. Failing to report may be considered experience rating evasion, and the rating organization can then adjust the mod, so report as soon as the deal closes.

References

• Workers' Compensation Rating and Inspection Bureau of Massachusetts: class 8107 lookup
• Workers' Compensation Rating and Inspection Bureau of Massachusetts: class 9534 lookup
• Workers' Compensation Rating and Inspection Bureau of Massachusetts: classification lookup tool
• NCCI: Experience Rating Plan Manual, Item E-1411 (ownership change rules)
• NCCI: ABCs of Experience Rating
• NCCI: Workers Compensation and Employers Liability Policy WC 00 00 00 C (premium, audit, transfer of rights)
• North Carolina Rate Bureau: Basic Manual Rule 1, Assignment of Classifications
• North Carolina Rate Bureau: Basic Manual Rule 2, Premium and Payroll (subcontractor tables)
• Cornell Law School: 29 CFR 1910.178 (powered industrial trucks, operator training)
• Cornell Law School: 29 CFR 1926.1427 (crane operator qualification)
• Washington State Legislature: RCW 51.16.200 (successor liability)
• Workers' Compensation Rating and Inspection Bureau of Massachusetts: class 8810 lookup

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.