Workers’ Comp Class Codes Explained: Why One Number Can Cost You Thousands
- Adam Overmyer
- Dec 23
- 4 min read
If you’re a New Jersey business owner who recently received a workers’ compensation audit bill you weren’t expecting, you’re not alone.
We regularly hear from restaurant owners, garage owners, coffee shop operators, retail businesses, and service companies who say the same thing:
“Nothing about my business changed — so why did my workers’ comp premium go up?”
In many cases, the answer comes down to one overlooked detail: your workers’ comp class code.
What Are Workers’ Comp Class Codes?
Workers’ compensation class codes are numerical codes used by insurance companies to categorize your business based on the actual job duties your employees perform.
Each class code:
Represents a different level of risk
Has its own rate per $100 of payroll
Directly affects how your workers’ comp premium is calculated
More physical or hazardous work = higher rates.Less risky work = lower rates.
Important: Class codes are based on what employees actually do, not job titles, and not how your business is marketed.
Why One Workers’ Comp Class Code Can Change Your Premium So Much
This is where many NJ business owners get caught off guard.
A single misclassified class code can result in:
Payroll is being assigned to a higher-risk category
Premium increases applied retroactively
A large bill arriving after the policy term ends
Because workers’ comp policies are audited after the fact, classification errors often aren’t discovered until the audit — when changes are harder (and more expensive) to fix.
This is one of the most common reasons workers’ comp audit bills increase.
How Class Code Mistakes Happen (Even When Payroll Is Accurate)
Many business owners assume their workers’ comp policy is correct because it was purchased through:
A payroll service
An online insurance platform
A broker focused on speed instead of operational detail
Unfortunately, those setups often rely on broad assumptions and limited intake questions.
Common issues we see include:
Employees performing multiple duties that weren’t disclosed
Managers or owners actively working “on the floor.”
One class code applied to all payroll when separation was appropriate
Business operations misunderstood at policy inception
The policy may issue smoothly — but the audit tells a different story.
Why Workers’ Comp Audits Feel So Unfair
Workers’ comp audits typically occur after your policy expires.
During the audit, the carrier reviews:
Payroll records
Job duties
Locations
Business operations
If they believe payroll should have been classified differently, they can:
Reassign class codes
Recalculate premiums
Apply changes retroactively
That’s when business owners receive a bill and ask:
“Why wasn’t this caught when the policy started?”
It’s a fair question — and one we help our clients navigate every day.
If you want a deeper breakdown of how audits work and how to prepare, we’ve covered that in detail here:👉 How to Handle Your Workers’ Comp and General Liability Insurance Audits with Less Stress
Workers’ Comp Class Codes vs. NAICS Codes
Another common source of confusion is the difference between NAICS codes and workers’ comp class codes.
NAICS codes describe your industry for reporting and regulatory purposes
Workers’ comp class codes describe the risk level of work being performed
They are not the same and should not be used interchangeably. Mixing them up is a frequent cause of audit reclassification issues.
Real-World Insight (Without Naming Names)
We recently worked with a New Jersey business that received a significant workers’ comp audit adjustment.
The issue wasn’t payroll accuracy — it was how the business operations were interpreted and classified. Certain job duties were assumed to be higher-risk than they actually were, leading to a retroactive premium increase.
These situations are common — and often preventable with the right review upfront.
How to Protect Your Business From Class Code Errors
While audits are part of workers’ comp insurance, surprises don’t have to be.
Here’s how NJ business owners can reduce risk:
Review class codes annually
Clearly document employee job duties
Separate payroll when employees perform different types of work
Report operational changes during the policy term
Work with an independent insurance agency that understands audits
Workers’ comp should never be “set it and forget it.”
Why Working With a Local Independent Agency Matters
At The Overmyer Insurance Agency, we specialize in helping New Jersey small and mid-sized businesses properly structure their workers’ comp coverage.
As a local independent agency:
We take time to understand how your business actually operates
We help ensure the correct class codes are applied from the start
We assist with audit reviews and disputes when needed
We advocate for our clients — not just the insurance company
Our goal is simple: accurate coverage, fewer surprises, and long-term stability.
Workers’ Comp Class Code FAQs for NJ Business Owners
Can a workers’ comp class code really increase my premium that much?
Yes. Each class code carries a different rate per $100 of payroll. If payroll is reassigned to a higher-risk class code during an audit, the premium difference can add up quickly — especially when applied retroactively.
Why wasn’t the class code issue caught when my policy started?
Many policies are issued based on limited information, especially when purchased through payroll services or online platforms. Class code accuracy is often reviewed in detail only during the audit.
Can I dispute a workers’ comp audit due to an incorrect class code?
In some cases, yes. If job duties or operations were misunderstood, documentation can sometimes be provided to request a correction. Timing and proper support are critical.
Does every employee need to be classified under the same class code?
Not always. Many businesses have employees performing different types of work. When allowed, separating payroll by job duty can help prevent overpayment.
How can I avoid workers’ comp audit surprises in the future?
Annual reviews, clear documentation, proactive communication with your agent, and working with an experienced independent agency are the best ways to prevent surprises.
Don’t Wait Until the Next Audit
If you’ve already received a workers’ comp audit bill — or want to make sure your policy is set up correctly before renewal — now is the time to review your classification.
👉 Request a Workers’ Comp Class Code Review
👉 Schedule a Workers’ Comp Audit Check
The Overmyer Insurance Agency is here to help NJ business owners navigate workers’ comp coverage with clarity, confidence, and local expertise.