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Product Design and Distribution

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Product Design and Distribution

February 3, 2016

Many employers design products in California, have the products made to their design specifications by separate or out-of-state businesses, and receive the completed merchandise in California for distribution. These employers are assigned to the applicable store or dealer classification and are not assigned to a manufacturing classification. There are two exceptions to this procedure, however, for employers that design clothing  or proprietary electronic  products in California.

Classification 2501(1), Clothing Mfg., applies to clothing manufacturers that design garments in California, even if some or all of the production sewing or assembling operations are subcontracted. The classification also directs that employers that do not manufacture or design the garments in California, but purchase garments for wholesale distribution are classified as 8032, Stores – clothing, shoes, linens or fabric products – wholesale. Accordingly, clothing manufacturers that only maintain a distribution center in California shall be classified as 8032, Stores – clothing, shoes, linens or fabric products – wholesale.

CLOTHING MFG. – including embroidery manufacturing

This classification includes clothing manufacturers that design garments, even if some or all of the production sewing or assembling operations are subcontracted. Employers that do not manufacture or design the garments in California, but purchase garments for wholesale distribution shall be classified as 8032, Stores – clothing, shoes, linens or fabric products – wholesale.

Clothing manufacturers that only maintain a distribution center in California shall be classified as 8032, Stores – clothing, shoes, linens or fabric products – wholesale.

 2501(1)

The classification procedure for electronic products is detailed in the California Workers’ Compensation Uniform Statistical Reporting Plan—1995 (USRP), Part 3, Standard Classification System, Section IV, Special Industry Classification Procedures, Rule 3, Electronic Products Design and Manufacturing.

Electronic Products Design and Manufacturing

The Electronics Industry  Group includes a list of classifications that apply to employers engaged in the manufacture of electronic and electrical products. These classifications contemplate manufacturing operations whether performed in connection with the employer’s proprietary products or performed on a contract basis for other concerns.

Employers that design the proprietary product, but subcontract the manufacture to other concerns, shall be assigned to the appropriate Electronics Industry  Group manufacturing classification provided the following functions are performed:

  1. Product design;
  2. Manufacture of the prototype, or subcontract the manufacture of the prototype; or
  3. Receipt of the manufactured product and performance of quality control operations prior to shipment.

Employers that neither design nor manufacture the product, but purchase products from manufacturers for resale purposes, shall be assigned to the appropriate Stores classification notwithstanding that they may engage in some product preparation or quality control operations.

For both clothing and electronic products, design of the product in California is the threshold requirement for assignment of the applicable manufacturing classification. Clothing and electronic products are the only categories of products that result in the assignment of a manufacturing classification, rather than a store or dealer classification, to employers that design products in California but subcontract manufacturing to other businesses.

More Classification Resources

California Workers’ Compensation Uniform Statistical Reporting Plan—1995 
Classification Search
Classification Information
Online Guide to Workers' Compensation: The Standard Classification System
Classification and Test Audit Insight e-Newsletters