You run a unique business, in a unique industry. So, it’s no surprise surf business workers’ comp insurance is going to be a unique type of coverage.
When it comes to Workers Compensation insurance, how your business is classified is important. Your premium rates are based on the class code, or codes, assigned to your business.
Finding the proper class code is vitally important when it comes to your insurance policy being assigned the correct class code and rate. In California, the WCIRB, the Workers Compensation Insurance Rating Bureau, is responsible for the classification system. By grouping businesses with similar operations, classifications are set and clearly defined, and then pure premium rates are set. There are about 500 classifications in the Workers Compensation system.
Many businesses have clearly defined class codes, such as retail stores, or clerical office employees. The nature of the business is reflected by the classification name, which makes it easy to classify and rate these risks.
Not every business is as easily determined as to what classification is the correct and property classification. For these businesses, their classification is usually under a similar type of classification. Surf Instructors are one example. There is no classification for Surf Instructor or Surf Camps for workers’ compensation insurance, so which means that it falls under the definition of a different classification. This is where it is easy to misclassify a business.
Surf Instructors, while instructors, cannot be classified under the standard Schools or Education classifications. Neither can they be classified under what seems like the appropriate class code, 9053(3) Swimming Pools or Swimming Clubs. It seems that Swimming Pools or Swimming clubs would be correct, due to the nature of water-based activities, but just because they sound like they are similar, they may not be.
The WCIRB website is a great resource for both agents and businesses to look up class codes to ensure that a business is properly classified. In addition to listing what each classification entitles and considered within the scope of the class code, it will also tell agents what risks are not included in that classification in the footnotes. This resource is free to anybody.
If you go to the WCIRB and look up 9053(3) Swimming Pools or Swimming Clubs it tells you that it includes restaurant employees, retail employees, and receptionists under this class code as well as swimming, diving, scuba diving, and water safety instructors performed in swimming pools. Looking at the footnotes gives relevant information about other business classes that are similar, but belong in other classifications. It states the following, “Water-based athletic or fitness instructional programs at locations other than swimming pools, including but not limited to surfing, scuba, kayaking, paddleboarding, and kite surfing lessons and tours on lakes, bays, rivers or oceans, shall be classified as 9180(1), Amusement or Recreational Facilities — N.O.C. — operation or maintenance of amusement devices.
It is easy to see why it can be easy to misclassify a risk. Surfing sounds like it is related more to swimming than that of amusement or recreational facility but it is not. The classification system is based on grouping risks with similar business activities as well as the risk exposure. Swimming instruction in a pool is a different risk exposure than a surf instructor, and so it is included in the classification that more closely matches the exposures and thus, the right rate will be applied.
The WCIRB footnotes for 9180(1) Amusement or Recreational facilities – NOC includes. “guided tours for water-based activities or water-based athletic or fitness instructional programs at locations other than swimming pools, including but not limited to surfing, scuba, kayaking, paddleboarding or kite surfing on lakes, bays, rivers or oceans.”
If you are a Surf Instructor, and you have a policy rating you as class code 9053(3) instead of class code 9180(1), your policy is not classified correctly. Workers Compensation policies are auditable policies. At the end of the policy term, an audit is done to reconcile the estimated payroll used at the beginning of the audit to the actual payroll. It will also verify classification and job duties, as well as business ownership. By using the wrong class code, when picked up at your audit, it would mean that the payroll for that classification would be re-assigned to the correct payroll, and any difference in premium would be due. As a business owner, you need to ensure that your employees are all correctly classified to avoid audit issues.
Surf Schools in California also need to be aware of AB5. This changed the definition of an Employee vs an Independent Contractor. Many businesses use independent contractors, and it is common for schools such as dance, art, music. Surfing schools frequently hire their instructors as independent contractors. AB5 has changed the landscape of what is an employee vs an independent contractor and it has re-classified a significant portion of independent contractors as employees. This means that they are automatically covered under Workers Compensation, qualify for unemployment, can get sick leave, etc.
Many businesses are now finding out at audit that their independent contractors are being classified as employees, and the costs paid to them will be counted as payroll. As well as hefty audit premiums, currently, in-force policies are often endorsed to include the payroll for independent contractors, generating a second additional premium due.
For any Surf School that uses independent contractors, their payroll needs to be included as employee payroll. If your policy does not currently include their payroll, it would be best to include it via an endorsement to avoid paying it all at the audit. The state has created a website with resources and information about AB5, which can be accessed here: https://www.labor.ca.gov/employmentstatus/.
Making sure that your Workers Compensation policy has your Surf School rated correctly is important. Misclassified employees can cause problems with both audits and claim if an employee is hurt but not classified properly. This also includes having your independent surf instructor payroll being included as payroll because of AB5.
If you have any questions about classification or AB5, AMPED Insurance can help you determine the correct class codes, and what payroll needs to be included.
Learn more about surf business, camp, instructor insurance.