Machine Shop Workers' Comp: Class Codes and Audits

Your workers' comp premium is a rate per $100 of payroll for the class code that describes your shop, applied to your payroll and adjusted by an experience mod. The mod is a multiplier built from the shop's past claims, and you usually inherit the seller's. Three things matter most: the class, the payroll you report and the records that back both, because welding, assembly, field work and office roles can each change the class. This guide is for new owners checking the policy, payroll and audit they inherited. Codes and rules vary by state and rating bureau, and the insurer assigns the code.

The short answer

A shop's class code describes the business, not each person's job. Under the Wisconsin wording, clerical office staff can be rated separately only if they work exclusively in the office, and NCCI-style rules also call for an office area separated from operating hazards.
Class descriptions for parts-only machining are narrow. A shop that also welds, assembles or fabricates may not fit the parts-only class, which can change the rate on the whole payroll.
You usually inherit the seller's experience mod, and you cannot simply take over the seller's policy.
In states that use the National Council on Compensation Insurance (NCCI) and several that use their own rating bureau, the policy requires you to report the ownership change within 90 days.
Estimated payroll is adjusted at audit, up to three years after the policy ends. Accurate payroll and duty records by employee and task are your main defense, though they cannot create a split the manual does not allow.

How do the jobs in a machine shop map to class codes?

Class wording differs by state. To show how one machining class reads, here is wording from the Minnesota and Wisconsin rating bureaus, which use four-digit numbers like those of NCCI. Ask your insurer to show the wording behind your own code. A class code describes the shop's business and applies to the whole operation, with a few standard exceptions such as office staff. Your insurer or rating bureau assigns it, and California, Pennsylvania and Delaware use their own classification systems.

3632: general job machining and the manufacture or repair of machines not otherwise classified (NOC)
3629: parts-only machining (single-piece parts machined for others, under the four conditions in the next section)
3724: machinery erection or repair at other locations
8810: clerical office staff
8742: outside sales

Those numbers are two bureaus' wording, not a national rule, and may not match your state. Do not assume a tool and die shop fits any of them.

Machine shop roles and class code questions
Role	Class question to ask	Records to keep
Machinist, computer numerical control (CNC) setter and operator	The shop's main class, such as general job machining (3632 in those manuals) or a parts-only class (3629)	Payroll by employee and job type
CNC programmer	May not qualify as clerical if the person also works at machines	Written description of duties; clerical status generally needs exclusively office work
Tool and die maker	Not settled by the manuals, which point to different headings, so ask the insurer	Written description of the work
Welder or assembler	Can take the shop outside a parts-only class, and may not be separable from the main class	Written description of operations, payroll by task and any physical or payroll separation
Inspector, scheduler, estimator	Clerical status generally requires exclusively office duties in an office separated from the shop floor	Job descriptions that show whether any floor duty exists
Outside salesperson	A standard exception only if duties fit, and not if the person delivers goods	Travel and delivery log
Field service or installation crew	May be classified differently (3724 covers work at other locations in those manuals)	Separate payroll for field time
Shipping, material handler, driver	May follow the main class; ask the insurer how drivers are rated	Driver records if vehicles are used

To challenge a code, see workers' comp class code corrections and the class code glossary entry.

Which class applies if the shop welds, assembles or fabricates?

In the Minnesota and Wisconsin manuals, the parts-only class applies only to employers that machine single-piece parts for others and meet four conditions: the operations and the parts are not described by another class, the shop does not assemble the machined parts into end-product components (assembly includes welding, fastening, inserting and pressing), and it does not do casting, forging, stamping, forming or fabrication. A shop that welds or assembles beside its machining may not qualify. If it does not, the change can apply to the shop's main class, not only to the welders, and the rate can differ.

A business generally gets a second basic class only for truly separate operations that are physically separated and have separate payroll records, so welding or assembly in the same building by the same crew may not be carved out by timesheets. Where a split is allowed at all, it needs records of actual time and pay, not estimates.

Which injuries should shape your safety and claims plan?

The Bureau of Labor Statistics (BLS) pooled data for 2023 and 2024 for machine shops show where hazards concentrate. These are national, rounded counts, not what your claims will be.

About 3,860 days-away-from-work cases.
About 57 percent involved the upper extremities, about 34 percent the hand and about 8 percent the back.
More than half were contact incidents, such as being struck by a propelled or falling object, contact with objects or equipment that was not running, or being caught by running equipment.
About 28 percent were overexertion and similar causes.

Claims in the experience period keep feeding the mod you inherit, so ask for loss runs by claim, see which are still open, and make return-to-work part of the first-year plan. Return-to-work programs can help.

The Occupational Safety and Health Administration (OSHA) machine guarding standard covers the operator's point of operation, and its lockout and tagout standard covers servicing, maintenance and some setup tasks. Federal OSHA also requires employers to report a work-related fatality within 8 hours and an in-patient hospitalization, amputation or loss of an eye within 24 hours; state-plan states may have their own versions. Do not assume a fine for missing any of these duties is insured.

What happens to the mod and the policy when you buy the shop?

When a business changes hands, its payroll and claims history usually follow the business, so the buyer usually inherits the seller's mod (above 1.00 raises premium, below 1.00 lowers it). Under NCCI rules, dropping the seller's experience is rare and generally requires a near-complete change of owners, a change in operations large enough to change the main class, and a change in the work process and hazards. A buyer who keeps the same machines, crew and customers should plan on inheriting the mod.

Report the change. In NCCI states and several bureau states the policy requires you to report an ownership change to the insurer within 90 days, so check your state. A missed report can lead the rating bureau to treat the change as an attempt to dodge the seller's claims history and correct the mod, in NCCI states back to the date of the change, up or down.
Do not rely on the seller's policy. An asset buyer needs its own at closing.
Check the audit trail. In a stock deal the acquired company usually owes the audit balance, including pre-closing payroll, so ask deal counsel who bears it.

Morrow can read the inherited policy, the mod worksheet and the last audit and flag questions to put to the insurer; any new terms depend on carrier underwriting. States differ. Eleven states use independent rating bureaus (California, Delaware, Indiana, Massachusetts, Michigan, Minnesota, New Jersey, New York, North Carolina, Pennsylvania and Wisconsin), and their rules and reporting routes can differ from NCCI's. North Dakota, Ohio, Washington and Wyoming run monopolistic state funds, so private insurers cannot sell the coverage (confirm any self-insurance rules with the state), with employer liability usually added through stop gap coverage. See how to check your experience mod for errors.

How do payroll estimates and audits work in a shop?

The premium on a workers' comp policy is an estimate. After the policy ends the insurer sets the final premium from actual payroll and the correct class codes, and you pay any balance or get a refund. The insurer can audit for up to three years after the policy ends.

A hypothetical example. A shop reports a scheduler as clerical. The scheduler also walks the floor and inspects first-article parts. The shop reports its machinists under the parts-only class, but it also welds and assembles. At audit, the scheduler's payroll moves to a higher-rated class because the person also works on the floor, and because the shop welds and assembles, the insurer questions whether the parts-only class fits at all, so the main class and the rate on the whole payroll can change. Any real result depends on the class, state and rates.

Build the records before the audit: payroll by employee and task, written job descriptions and certificates from every outside contractor. Ask the insurer how a first-article inspector who also sets up machines, or a programmer who edits code at the machine, is described on the audit, and write down who does what before the first audit. See payroll estimates and surprise workers' comp audit bills and pay-as-you-go workers' comp.

What about temp labor and outside contractors?

Temporary labor. About 3 percent of machinists work through employment services, according to the Bureau of Labor Statistics. If your shop fills operator or setup roles with agency staff, ask who carries workers' comp for them and keep the agency's certificate and contract on file.

Outside contractors. Premium can include pay to anyone whose work could make the policy liable, so an uninsured freelance programmer or setup contractor can end up on your audit. See 1099 contractors and the workers' comp audit bill.

What about a PEO and owner coverage?

If the seller's staff were on a professional employer organization (PEO), in an asset purchase your new entity needs its own agreement or policy at closing, while in a stock purchase you should ask the PEO what its contract says about the change of owner. Under NCCI rules, joining or leaving a PEO is not an ownership change for the mod. See PEO versus your own workers' comp policy. Whether you and any partner are covered or excluded as owners depends on the state and the entity form, so confirm it with your broker.

Is workers' comp optional for a Texas machine shop?

In Texas, private employers can choose to carry workers' comp in most cases, according to the Texas Department of Insurance. A lender or a customer contract may still call for it, so check your loan documents and supply agreements. Other states differ. See also just bought a machine shop.

Keep reading

Frequently asked questions

What workers' comp class code does a machine shop use?

It depends on the state, the rating bureau and what the shop really does. The Minnesota and Wisconsin manuals use 3632 for a general machine shop and 3629 for a narrower parts-only class, but the insurer or bureau assigns the code, and some states use their own systems. Ask your insurer to show the code and the wording that supports it.

Does the seller's experience mod follow me after I buy the shop?

Usually yes. When a business changes hands its payroll and claims history generally follows, so the buyer usually inherits the mod. In NCCI states and several bureau states the policy requires you to report the ownership change within 90 days, and the rating organization decides how the mod is recalculated.

Can my shop office manager be rated as clerical?

Only if the person's duties meet the clerical definition, which in the Wisconsin wording covers employees engaged exclusively in office work, and NCCI-style rules also call for an office separated from operating hazards. In the manuals read here, pay for a clerical or outside sales employee is not divided between classes: a person with any floor duty is rated in the shop's higher class. Where a split between two shop classes is allowed at all, it needs records of actual time and pay, not estimates.

Who is responsible for a workers' comp audit bill after I close?

Usually the named insured on the policy owes the audit balance. In a stock deal that is the company you now own, so a post-closing audit can include pre-closing payroll. In an asset deal it is normally the seller on the seller's policy. The purchase agreement decides who bears the cost, and Washington and Ohio have successor rules for state fund accounts, so ask deal counsel.

Do I need workers' comp for temporary workers from a staffing agency?

Usually the agency carries comp for its own workers, but who is the employer for comp purposes depends on the law and the contract. Ask for the agency's certificate and read the agreement. An uninsured arrangement can end up on your audit.

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 Machine Shop