Fencing Workers' Comp: Class Codes, 1099s and Mod

Your fence crew's workers' comp is priced on payroll, times a rate for your class code (the number that tells the insurer what kind of work you do), adjusted by your experience mod (a factor built from past claims). The insurer, not you, assigns the code, so start with which code the policy uses and how much payroll sits under it. Massachusetts's rating bureau calls code 6400 "fence erection, all types," and one lookup site shows the same number in many other states. Codes still vary by state and bureau, and gate wiring, shop fabrication and highway work can be rated differently. This guide is for owners who just bought a fencing company and want to check the class, payroll, 1099 installers and mod before the first audit.

The short answer

Class codes classify the business, not each job title. The insurer assigns the code for your operations and an auditor can reassign it, so ask what the policy says and why.
Installers paid as 1099 workers are the audit risk. An uninsured subcontractor's pay can be treated as your payroll, so certificates and records come first.
The seller's mod usually follows the business. Report the ownership change to the insurer within 90 days. Under NCCI rules a recalculated mod applies back to the date of the change, and independent bureau states such as New York and California have their own rules.
The state system matters. Some states use independent bureaus, four use state funds, and Texas lets most private employers go without coverage.

How do fence crew duties map to class codes?

Workers' compensation classes the employer's business, not each employee's job. A crew leader, an installer and a laborer on the same fence job generally sit in the same class. The table shows the groups at a fencing company and how the class question usually works for each. Codes named here come from the Massachusetts rating bureau or a third-party lookup, and the insurer assigns your code.

Fencing company employee groups and the class question for each
Group	Typical work	How the class question works
Installers, laborers, crew leaders	Layout, digging with augers, setting posts, pouring concrete, hanging rails, fabric and gates	Generally the fence erection class, shown as 6400 by the Massachusetts bureau and by a lookup site for many other states
Highway fence and guardrail crews	Erecting fence and guardrail on highway projects	Massachusetts puts specialists in 6400 but uses 5506 when a general or paving contractor's own employees do the work
Shop welders and fabricators	Cutting, welding and bending ornamental iron or wire in a shop	Massachusetts rates off-site manufacturing and on-site fabrication separately, and lists wire fence manufacturing under 3257
Gate and access control technicians	Installing operators, sensors and wiring	Not settled: Massachusetts says electrical wiring is separately rated in several classes (5190), so ask how your policy treats gate wiring
Drivers and equipment operators	Hauling trailers, running skid steers	Ask your insurer how drivers are rated in your state's manual; some manuals fold them into the main class and others may rate them separately
Estimators and salespeople	Quotes, site visits, customer calls	Outside sales (8742) only if duties fit the definition; an estimator who also stakes and installs may not qualify
Office staff	Scheduling, billing, payroll	Clerical (8810) only if duties and work area fit the definition

Two cautions. First, the same number can mean something else in another state: a lookup site shows 6400 as "Dock Installation" in Michigan. California and Pennsylvania use their own classification systems, so National Council on Compensation Insurance (NCCI) wording does not carry over directly. Second, who does the work and on what project can change the class: in Massachusetts, a builder's own carpenters who build a fence while the builder is constructing a residential dwelling of three stories or less follow the carpentry class, and a specialist fence company does not. For how the class affects cost, see what drives insurance cost for a fencing company.

Will the seller's claims history follow me, and what changes by state?

Usually yes. The experience mod is the factor that raises or lowers your premium based on past claims, and under NCCI rules, buying a company's stock or its assets and taking over operations is an ownership change, so the seller's past payroll and claims history generally transfers to you. Buying assets into a new company does not reset you to a 1.00 mod. The policy requires you to report the change to the insurer within 90 days. In NCCI states the report can go on NCCI's request for ownership information form, through its online ownership tool or in a signed letter on company letterhead; North Carolina intrastate risks and Pennsylvania and Delaware use their own bureau tools. Failing to report may be treated as experience rating modification evasion. A recalculated mod applies back to the date of the change, whether up or down, under NCCI rules. Excluding the seller's experience is rare and needs a near-complete change of owners, a change in operations big enough to change the governing class code, and a change in work process and hazards. See reviewing the experience mod for errors.

Workers' comp rules that change by deal and state
Situation	What to know	What to do
Asset purchase	The seller's policy rights generally cannot move to you without the insurer's written consent	Have your own policy effective at closing
Professional employer organization (PEO) in place	Joining or leaving a PEO is not an ownership change, and PEO coverage does not automatically extend to a new entity	Read the PEO agreement and confirm coverage at closing
Independent bureau state	Eleven states, including California, Massachusetts, New Jersey, New York and Pennsylvania, use their own bureaus	Ask which bureau's class and experience rating rules apply. A few of these states, including Massachusetts and North Carolina, use NCCI's experience rating plan even though they have their own bureau
State fund state	North Dakota, Ohio, Washington and Wyoming: workers' comp must be bought from the state fund and private insurers cannot sell it; Washington and Ohio have successor rules	Ask the fund about successor liability and notice, and ask about stop gap employers liability coverage (liability cover for lawsuits by injured employees, which state fund policies do not include)
Texas	Most private employers may choose not to carry coverage, but a customer, lender or insurer may require it	Check contracts and loan documents

What if one worker does two kinds of work?

One employee's pay can be split between classes only if records show the actual time and pay in each, and without them all of that employee's pay generally goes to the highest rated class involved. For a company that fabricates gates in a shop in the morning and installs them in the field in the afternoon, that rule is the practical reason to keep time records by job. See how class code corrections work.

How do payroll estimates and audits work for a crew?

The premium on the policy is an estimate. The final premium is set after the policy ends from actual payroll and the correct classes, and the insured pays any balance or gets a refund. The standard NCCI policy lets the insurer audit records during the policy period and for up to three years afterward.

The payroll rules below come from the NCCI manual as North Carolina publishes it, and your state may differ. Payroll for premium purposes generally includes wages, commissions, bonuses and paid time off, and excludes items such as qualifying expense reimbursements. Overtime premium pay is excluded only if records show overtime separately by employee. If storm repair work or a large subdivision job will swell the crews during the year, tell your broker so the payroll estimate follows, and use the guide to payroll estimates and audit bills to avoid a surprise.

In a stock purchase, a post-closing audit can bill the company you now own for pre-closing payroll, and who bears that cost is a purchase agreement question for your counsel. For a pay-as-you-go plan, see pay-as-you-go workers' comp payment plans.

Ask the broker to sort the last three years of claims by cause (auger, saw, ladder or truck bed, heat, vehicle) so you can see what sits on the mod worksheet.

What happens when installers are 1099 workers or subcontractors?

The premium base includes pay to employees and to other persons engaged in work that could make the insurer liable under the policy. At audit, an uninsured subcontractor's charge is classified as if its workers were your employees, and your mod applies. If you cannot provide payroll records, the North Carolina edition of the NCCI manual uses minimum percentages of the subcontract price, and other states differ:

90 percent of the subcontract price for labor only.
50 percent of the subcontract price for labor and materials.

Proof that the subcontractor's employer secured its own coverage, usually a certificate of insurance, is what keeps the pay off your audit, and state law decides whether a subcontractor's workers could make you liable at all.

Ask who installs, how they are paid and whether a certificate was collected for each. A worker classification test in your state can treat a 1099 installer as an employee regardless of the label. The guide to 1099 contractors and the audit covers the fix, and checking that subcontractors carry required coverage covers the paperwork.

A hypothetical example. A laborer's arm is caught when a two-person auger binds on a buried rock, and he misses 10 weeks. His claim goes through workers' compensation and, because the experience period generally covers about three years, it can raise the mod for several renewals.

The same crew included a helper paid on a 1099 who had no certificate on file. At the next audit the auditor asks about the helper, and without a certificate or payroll records the helper's pay may be added to your base. The questions for the owner are which class the policy uses, how the open claim is valued on the loss run (the mod uses it), and whether the helper really was an independent contractor under your state's test. None of that is a prediction of an outcome.

Do you have to cover yourself as the owner?

Maybe. Whether an owner or executive officer must be covered, can elect out or can be excluded varies by state and entity type, and an owner who also works on the crews raises the question of which class and payroll to use. A buyer who runs the company while investors or a seller note hold equity should ask the broker how the state treats officers and members, and whether a lender or customer contract expects coverage. Entity questions belong with your counsel. The workers' compensation page gives the basics.

Put the mod worksheet and the last two audits in your diligence file, and ask your accountant whether a likely audit balance belongs in your price or working capital discussion. Morrow can review the inherited class, payroll and mod and request quotes, with terms depending on carrier underwriting.

Keep reading

Frequently asked questions

What workers' comp class code does a fencing company use?

It depends on the state and the rating bureau, and the insurer assigns it. The Massachusetts bureau uses 6400 for fence erection of all types, and a lookup site shows 6400 in many other states with different wording in a few. Gate wiring and shop fabrication can be rated separately, so ask your insurer what applies to you.

Do I need workers' comp for 1099 installers?

Often the question is whether their employer carries it. If an installer has no coverage and no certificate is on file, an audit can treat the pay as your payroll. State classification tests can also treat a 1099 installer as an employee, so check with your insurer and counsel.

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

Usually. Under NCCI rules the seller's experience generally transfers when you buy stock or assets and take over operations, and a mod recalculated after the change applies back to the date of the change. Report the change within 90 days, and ask your broker what applies if your state uses its own bureau.

Is workers' comp required in Texas?

Not in most cases for private employers, according to the Texas Department of Insurance, but employers without it must report that status and certain injuries. A customer, lender or insurer may still require coverage.

Can one worker be split between two class codes?

Only if records show the actual time and pay in each class. Without proper records, all of that employee's pay generally goes into the highest rated class involved.

Do I have to cover myself as the owner?

Maybe. The rules on whether owners and executive officers must be covered, or can opt out, differ by state and entity type. Ask your broker for the rule where you operate, and check whether a customer contract or loan document asks about it.

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.

Workers' Comp, Payroll and Class Codes for a Fencing Company