Workers' comp
Workers' Comp Class Codes for Contractors
How construction class codes work, the codes most trades use, and the payroll records that keep your premium and your audit fair.
For a construction company, workers' comp is usually one of the biggest costs after wages, and it's driven almost entirely by payroll. Your insurer assigns a classification code to each kind of work your crews do, each code has its own rate per $100 of payroll, and at the end of the policy year an auditor checks how your payroll was actually split. Get the codes and the records right and you pay for the risk you actually have.
How the premium is figured
Arizona uses the classification system maintained by the National Council on Compensation Insurance (NCCI), like most states. The basic math is:
Premium = (payroll in the code ÷ 100) × the code's rate × your experience modification, plus any other adjustments on your policy
Example (illustrative rates only)
A remodeler has $400,000 of carpentry payroll at a rate of $6.00 and $60,000 of clerical payroll at $0.20. That's $24,000 + $120 = $24,120 before the experience mod. If $100,000 of that carpentry payroll had been interior trim work at a lower rate and the records didn't show it, the company paid for it at the higher rate. Actual rates vary by carrier and change every year.
Rates come from loss costs filed by NCCI and approved by the Arizona Department of Insurance and Financial Institutions, adjusted by each insurer. Your experience modification compares your own claims history with what's expected for your size and trades, so a strong safety record lowers your premium over time.
Common construction class codes
Your insurer makes the final call on which codes apply to your business. These are the codes most trades see:
| Code | Work |
|---|---|
| 5645 | Carpentry: residential dwellings |
| 5403 | Carpentry, not otherwise classified (commercial) |
| 5437 | Carpentry: cabinet work and interior trim |
| 5551 | Roofing, all kinds |
| 5190 | Electrical wiring within buildings |
| 5183 | Plumbing |
| 5537 | Heating, ventilation, and air conditioning (HVAC) |
| 5213 | Concrete construction, not otherwise classified |
| 5221 | Concrete work: floors, driveways, sidewalks, flatwork |
| 5022 | Masonry |
| 5445 | Drywall and wallboard installation |
| 5474 | Painting |
| 6217 | Excavation and grading |
| 0042 | Landscape gardening |
| 5606 | Contractor project managers, construction executives, and superintendents who don't do or directly supervise hands-on work |
| 8810 | Clerical office employees |
| 8742 | Outside salespeople |
Splitting one worker's payroll between codes
Plenty of construction workers do more than one kind of work. Under the rules most states use, including Arizona, you can split a worker's payroll between codes only if your payroll records show the actual hours and pay in each type of work. Estimates and percentages usually aren't accepted. Without the records, the auditor can assign all of that worker's payroll to the highest-rated code that applies.
The fix is daily timesheets that record the type of work, not just the hours, and pay codes in payroll for each kind of work. How this fits into running payroll.
Overtime premium is usually left out
Under the rating rules most states use, including Arizona, the extra half-time portion of overtime pay can usually be left out of workers' comp payroll, as long as your records show it separately. On a crew that works a lot of overtime, that's real money. Your payroll system already has to track the overtime premium separately for 2026 W-2s, so ask that it be reported by class code too.
Subcontractors and the audit
- Collect certificates of insurance from every sub before they start, and keep them current. Payments to uninsured subcontractors can be added to your payroll at audit and charged at the code for the work they did.
- Arizona's statutory employer rule. When you hire a contractor to do work that's part of your business and keep supervision or control over it, Arizona law (A.R.S. § 23-902) can treat that contractor's workers as your employees for workers' comp. An uninsured sub can become your claim.
- Calling crew members "subs" doesn't move their payroll off your policy. How to tell a real sub from an employee.
- At audit, have your payroll by class code, overtime premium, sub payments with certificates, and officer payroll ready. Clean reports make the audit faster and fairer.
Workers' comp through a PEO
Under a PEO, your employees are typically covered by the PEO's workers' comp policy, so you don't buy and manage your own. Class codes still drive the premium, which is billed separately from the PEO's administrative fee, but the PEO handles the policy, the reporting by code, and the audit. How PEO pricing works.
Class code questions
Who decides my workers' comp class code?
Your insurer assigns codes based on the work your business does, using the NCCI classification system Arizona follows. If you think a code is wrong, ask your agent or carrier to review it.
Can I split an employee's payroll between two class codes?
Generally yes, but only if your payroll records show the actual hours and pay in each type of work. Estimates and percentages usually aren't accepted, and without records the auditor can put all of that payroll in the highest-rated code.
Is overtime included in workers' comp payroll?
Usually only the straight-time portion. Under the rating rules most states use, including Arizona, the extra half-time portion of overtime can be excluded if your records show it separately. Confirm with your carrier.
What happens if my subcontractor doesn't have workers' comp?
Payments to uninsured subs can be added to your payroll at audit, and under Arizona's statutory employer rule their workers can be treated as yours for a claim. Collect a current certificate of insurance before any sub starts.
Get workers' comp handled
A PEO typically covers your crew under its workers' comp policy and handles reporting by class code and the audit. Free quote, no obligation. Use the quote form