Part 1: Workers’ Compensation Mysteries Unraveled

Some Wyoming businesses may have noticed changes in their EMR paperwork in terms of the actual rate. With questions arising it seemed appropriate to address several issues that people may have come across with Worker’s Compensation. The next few posts will address some areas of confusion.

Worker’s Compensation Terminology

  • The NAICS Code stands for the North American Industry Classification System and replaced the SIC (Standard Industrial Classification System). This system is a standardized system used by governmental agencies to classify businesses into groups that provided similar types of work. Codes are broken down into general industries and as the code gets longer, it gets more specific to the type of work a business does. For example, code 11 is “Agriculture, Forestry, Fishing, and Hunting.” Code 111 is a subcategory of code 11 but is specific to only Crop Production. Each additional digit adds a new subcategory. Code 111130 is a specific type of “Dry Pea and Bean Farming” under the category of all “Dry Pea and Bean Farming” (code 11113), which is under the category of “Oilseed and Grain Farming” (code 1111) and so forth.  The NAICS code system is used in Workers’ Compensation to assign premium rates.
  • Base Rate Percentage is Workers’ Compensation’s method of assigning premiums to companies. Unlike most insurance companies that have specific premiums that do not change unless insurance costs change, Workers’ Compensation bases their premiums off a business’s payroll expenses. Workers’ Compensation will assign “base rate percentages” to NAICS codes rather than premiums. For example, a base rate percentage of 7% would mean that the average business in that NAICS code would pay Workers’ Compensation 7% of their payroll expenses as premiums. If this business had $100,000 a year in payroll expense, their annual Workers’ Compensation premium would be $7,000.
  • Credibility Factor is Workers’ Compensation’s method of adjusting for consistency. The idea is that if a small company has an incident with high claims, it will look really bad on that company. The credibility range takes into account, based on previous experience and other factors, the likelihood that this level of claims will continue. If this small company had never had incidents before, it is not very likely that the high claims will continue. This would then give the company a low credibility factor, which translates to less impact on the company’s premiums.
  • EMR stands for Experience Modifier (or Modification) Rate. This is Workers’ Compensation’s method of compensating within NAICS codes for businesses with high costs and low costs. The EMR applied to the base rate percentage.

*Unless specific citations are shown, all answers are based on interpretations provided by authorized officials. As such, all information is deemed reliable, but not guaranteed.