How Much Does Workers’ Comp Insurance Cost?

Key Factors That Affect Workers’ Comp Insurance Costs

Industry and Job Classifications:

The industry in which your business operates plays a significant role in determining your workers’ comp premiums. Jobs with higher risks, such as construction or manufacturing, typically have higher premiums due to the increased likelihood of workplace injuries. 

Employees working in office settings, for example, tend to have lower rates.

A workers’ comp class code is assigned to each occupation and is used to determine the premium. Higher-risk jobs (like construction workers or heavy machinery operators) generally have higher rates than lower-risk jobs (such as office workers).

Payroll Amount:

The more you pay your employees, the higher your premium will likely be. Workers’ comp premiums are mostly calculated based on the total payroll of your business. Insurance providers typically use a formula where premiums are calculated as a percentage of your payroll. For example, if your workers’ comp rate is $0.75 per $100 of payroll and your total payroll is $500,000, your premium will be $3,750.
Additionally, some states or insurers may also take into account bonuses, commissions, and other compensation, so be sure to check with your insurance provider about what is included in payroll calculations.

Experience Modification Rate (EMR):

Your Experience Modification Rate (EMR) plays a significant role in determining your workers’ comp premiums. The EMR is a score that compares your company’s injury and claim history to other businesses in your industry. If your business has fewer claims or injuries than average, you may receive a discount on your premiums. However, if your claims history is poor, your EMR may increase, which will raise your premiums.
To keep your EMR low, it’s essential to maintain a good safety record and implement preventive measures to reduce workplace injuries.

State Regulations:

Workers’ comp rates and requirements can vary significantly from state to state. Each state has its own workers’ compensation laws, which influence the cost of insurance. In some states, you may be required to purchase insurance through a state fund, while in others, you may have the option to choose from private insurance carriers.

For example, California tends to have higher workers’ compensation costs due to stricter regulations and higher medical costs, while Texas has a more competitive market that can offer lower rates.

Understanding your state’s rules and shopping around for quotes can help you find the most affordable coverage for your business.

Claims History:

If your business has a history of frequent workers’ comp claims, your premiums may increase. Insurance companies view businesses with a history of claims as having higher risks and may charge them higher rates. Conversely, businesses with fewer or no claims over time may see a reduction in premiums.

For businesses with multiple claims, it is important to assess the cause of those claims and work on improving safety and risk management to reduce future incidents.

Safety Programs and Risk Management:

Insurers may offer discounts or lower premiums to businesses that implement effective safety programs or participate in risk management initiatives. Examples include offering employee safety training, conducting regular safety audits, or implementing accident prevention strategies. The goal is to minimize the likelihood of workplace accidents, which reduces the number of claims.

Example of How Workers’ Comp Costs Are Calculated

Let’s break down a simple example to illustrate how much workers’ comp insurance might cost for your business.

• Business Type: General contractor (high-risk occupation)
• Payroll: $200,000
• Class Code for General Contractor: 5403
• Workers’ Comp Rate for Class Code 5403: $7.50 per $100 of payroll
• EMR: 1.1 (meaning 10% higher than average)

Step 1: Calculate the Premium Based on Payroll

• Payroll of $200,000 ÷ 100 = 2,000
• 2,000 × $7.50 (rate) = $15,000

Step 2: Adjust for EMR

• $15,000 × 1.1 (EMR) = $16,500

Total Workers’ Comp Premium = $16,500 per year

How to Lower Workers’ Comp Insurance Costs?

Improve Workplace Safety:

By reducing the number of accidents and claims, you can lower your premiums. Implementing safety programs, regular training, and safety audits can help minimize risk.

Review Your Business Classifications:

Ensure that your employees are classified correctly according to their job duties. Misclassifying employees can result in paying more for insurance than necessary. For example, if a worker is classified under a high-risk code but performs low-risk duties, you might be paying more than necessary.

Reduce Payroll (If Possible):

Since workers’ comp premiums are based on payroll, one way to reduce costs is by carefully managing how much you pay employees. However, reducing payroll should be done cautiously and within the legal framework to avoid other issues.

Maintain a Clean Claims History:

A clean history of no or few claims can help lower your Experience Modification Rate (EMR), reducing your premiums. If your company does experience claims, addressing the root cause (e.g., unsafe practices) can help avoid future incidents.

Shop Around for Better Rates:

Since premiums vary by insurer, it’s a good idea to get multiple quotes from different providers to ensure you’re getting the best rate. Also, consider working with an insurance broker who specializes in workers’ compensation to find the most competitive offers.

Final Words

The cost of workers’ compensation insurance varies based on industry, payroll, claims history, and state regulations, among other factors. By understanding these elements and taking steps to minimize risks, you can keep your premiums under control. For an accurate estimate, it’s important to partner with an insurance provider who understands your business’s unique needs.