Yes. Class codes are the job categories your payroll is rated under, and in most states you may split one employee's payroll between two job categories that are properly on your policy, as long as your time records show the hours spent on each kind of work. For most contractors that means two construction categories, and the records must be kept as the work happens. Who this is for: contractors whose crews work in more than one trade.
The short version
- You can split one employee's payroll between two job categories on your policy if time records show the hours on each.
- Estimates do not count. If you cannot show the hours, all the payroll goes to the highest rated category.
- Payroll can never be split with the office or outside sales categories.
- Keep time cards by task from day one. You cannot rebuild them at audit.
- Done right, splitting can cut the premium on a mixed crew by a quarter or more.
When is splitting payroll allowed?
Most contractors' crews do more than one thing. A carpentry crew tears off and replaces a roof. A concrete crew hangs drywall in the off season. Each job has its own category, and the rates can differ a lot. The group that writes the job category rules for your state (the rating bureau) sets out when you may divide one person's payroll. The rule is called payroll division.
| Situation | Can you split the payroll? | What you need |
|---|---|---|
| Carpenter who also does roofing | Yes, between the two categories | Time cards showing hours on each task |
| Field employee who also does office work | No. The office pay is added to the category where most of that employee's payroll sits | The office category cannot be shared |
| Estimator or salesperson who also works on site | No. All payroll goes to the trade category | Same rule |
| Employee whose split you estimate at 60 percent and 40 percent | No. All payroll goes to the highest rated category | Percentages are not records |
That rule is the National Council on Compensation Insurance (NCCI) rule on payroll division, used in most states. About a dozen states run their own bureau with their own version, and in North Dakota, Ohio, Washington, and Wyoming the state fund sets the rules. Washington rates by hours worked.
The splitting rule stops an owner from guessing that most of the work was in the cheap category. Prove the hours and you pay the right rate on each. Cannot prove them, and you pay the highest rate on all of it.
What counts as a proper time record?
The records must be made as the work happens, not rebuilt later. In practice that means:
- One record per employee per pay period, showing hours by task, not just by job site.
- Totals that match your payroll. If the time cards show 38 hours and the paycheck shows 42, the auditor uses the highest category for the difference.
- Paper or an app, as long as entries are made day by day.
- Overtime tracked separately, because most states let you leave the extra pay above the normal hourly rate out of the payroll your premium is based on. The regular part of the check still counts, and Delaware, Nevada, and Pennsylvania do not allow the deduction at all.
Not accepted: a percentage estimate, a note that says "about half," or a spreadsheet built the week before the audit.
What happens if I split payroll without records?
The auditor moves all of that employee's payroll to the highest rated category and sends a bill. That is one of the most common surprise bills after a premium audit, the insurer's year end check of your real payroll. The bill is usually correct under the rule, so the fix is better records next year. See why audits produce extra bills.
How much does splitting payroll save?
An illustrative example for one employee earning $60,000 who spends 60 percent of his hours on carpentry and 40 percent on roofing.
| How the payroll is rated | Illustrative rate per $100 | Yearly premium on $60,000 |
|---|---|---|
| Split with time records: $36,000 carpentry | $8.00 | $2,880 |
| Split with time records: $24,000 roofing | $18.00 | $4,320 |
| Split total | $7,200 | |
| No records, all payroll to the highest rated category | $18.00 | $10,800 |
| Difference | $3,600 a year for one employee |
Multiply by a crew of five and the time cards are worth about $18,000 a year in this illustrative example.
How do I set it up?
- Check that every category you need is on the policy. If your crew does roofing and the policy lists only carpentry, ask your broker to add it now.
- Add a task line to the time card. Each day, each employee, hours by category.
- Reconcile weekly. Time card hours should equal payroll hours.
- Keep the records at least three years and hand them to the auditor with your payroll. If the auditor still lumps the payroll together, see how to ask for a review.
What this looks like in real life
Illustrative example. It is typical of what we see and is not a promise of how any specific situation would be handled.
The setup: A remodeling contractor in Arizona has five field employees and $310,000 of payroll. The crew does mostly interior carpentry, with roofing on about a third of the jobs. All payroll is written in carpentry at an illustrative $8 per $100.
What went wrong: At the audit the owner says the crew does "maybe 30 percent roofing." There are no time cards by task, only hours by job site. The auditor cannot use an estimate, so all $310,000 goes to roofing at an illustrative $18 per $100.
What it cost: The audited premium is $55,800, an extra bill of about $31,000 due in 30 days. With time cards showing the real split, it would have been about $34,100.
The fix: The owner adds a task column to the crew's time app the next Monday and asks the broker to add the roofing category to the renewal.
Frequently asked questions
Q: Can I split an employee's payroll between workers comp class codes?
Yes, between two job categories properly on your policy, if your time records show the hours spent on each kind of work. Estimates are not allowed, and payroll can never be split with the office or outside sales categories.
Q: Can I split payroll between office work and field work?
No. The office category cannot be shared. An employee who does both has all of that pay rated in the category where most of his work sits, and in the highest rated one if your records cannot show the hours.
Q: Does a job costing app count as time records?
Yes, if the crew enters hours by task day by day and the totals match your payroll. Auditors accept app exports as readily as paper cards. What they will not accept is a report built after the fact.
Q: What if the second category is not on my policy?
Ask your broker to add it before the work starts. An auditor can add a missing category at year end, but you will owe premium on it then, and the policy estimate will have been wrong all year.
Q: Does the splitting rule apply to my own payroll as an owner?
In most states the same records rule applies to any covered owner or officer. How your own pay is counted depends on your business type: an officer is rated on actual pay between a state minimum and maximum, a sole proprietor or partner who opts in on one flat amount.
Q: Can I fix a past audit if I had the records but the auditor lumped everything together?
Often, yes. Send the records to the insurer's audit department in writing and ask for a revised audit. If they refuse, the rating bureau or your state insurance department can review it.
How Morrow helps
Morrow is a licensed independent commercial insurance brokerage that works with contractors and trades every day. Setting up time records that satisfy the splitting rule, and getting every category onto the policy before the audit, is part of how we place and service a mixed trade contractor's workers comp.
- Free contract review. Send us the contract or bid documents and we mark up the insurance section in plain English, whether or not you buy anything from us.
- Free, instant certificates. Clients issue their own certificates of insurance online in about a minute, any hour, any day, at no charge.
- Markets you cannot reach online. One application, shopped across many insurance companies for general liability, workers comp, auto, umbrella, and pollution coverage.
One more thing. This article is general information and is not legal advice or a statement of coverage. Your contract and your policy wording control in every case. Requirements vary by customer, by state, and by insurance company, so have a licensed advisor review your own contract and your own policy before relying on any of it.
Last updated: Reviewed by the Morrow commercial lines team. Last updated September 2026.