Workers Compensation Insurance Cost

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Workers' compensation costs differ from state to state, depending on your business location. Companies with more employees and, consequently, more payroll are inclined to spend more on workers' compensation insurance because workers’ compensation is based on a rate for the job duty performed. That rate is applied per $100 of the annual payroll.

When pricing for workers’ compensation insurance, it starts with the class code used for the industry and job duty which translates to a base rate or base loss cost.  Some states use rates, and some use loss costs.  With loss costs, each insurer adds its modifiers based on its experience with a particular industry and class code or other variables.  Other factors get applied to loss costs for territory, claim adjustment expenses, terrorism, schedule debits or credits, etc. 

In some states, like FL, rates are the same for every insurance company, with little deviation from those rates available.  Experience modification factors, safe workplace credit, drug-free workplace credit, and a Florida contractor premium adjustment credit are usually the only deviations allowed.  Each carrier's modifiers differ in states where loss costs are used, resulting in a more competitive marketplace for workers’ compensation policies. The basis of premium calculation includes:

  • Payroll
  • Industry
  • Claims history
  • Job duties-classification

According to various sources, the average monthly cost of workers' compensation insurance in 2021 ranged from $45 to $111 per month. Averages can be misleading, and a lot depends on the industry and its risk factors contributing to employee injuries.

This WC formula can help estimate workers' compensation insurance premiums.

Workers’ Class Code Rate or Loss Cost X (Payroll / $100) = Base Premium

From the base premium, different modifiers are applied to get the final premium.  Sometimes, the insured company has an experience modification factor that gets applied, then carriers apply loss cost multipliers, and state surcharges, to get to the final premium. Different debit and credit factors will be applied to the base premium.

Experience modification factors are calculated by a state’s Workers’ Compensation governing body or NCCI.  The National Council on Compensation Insurance, or NCCI, is a rule and rate-making organization for about 21 states. 

Experience modification factors are calculated for individual businesses based on their workers’ compensation history, including premiums paid, claim history, and payroll for the last five years. Some companies have an experience modification number below 1.00 which represents a credit (pay less for WC), and some may have a   number over 1.0 which indicates a history of claims and represents a debit factor (pay more for WC).

Factors affecting the cost of workers’ comp insurance

A few fundamental factors influence how much you will pay for workers' comp insurance.

1. Your profession/industry

Certain occupations are more hazardous than others. Occupations with higher injury frequency or severity of claims will generate higher rates. For example, an electrician may have a higher rate than an accountant because an electrician has a higher chance of getting injured than an accountant, based on their job duties.

2. Your payroll

Your worker's compensation insurance premium depends on annual payroll by job duty (class code). When you submit your request for a quote, be ready to provide annual payroll per job.

3. Your claims history

How many workers comp claims has your business had in the last five years? Your business could see a higher premium if it had more claims in the prior years. As previously mentioned, the claim history will affect your experience modification factors are applied to the base premium.

4. Your location

Workers' compensation varies by jurisdiction, meaning premiums depend on the state where you work. In states that pay higher benefits, like a higher weekly average wage for lost wage claims, premiums may be higher.

Workers’ Compensation Costs by State

Workers' Compensation costs vary by state. Factors impacting cost vary depending on laws and payable benefits required in your state. 

Some states, including Alabama, require businesses with at least five employees to have coverage. Other states require companies with one employee to have workers comp insurance.

Some states may allow an exemption from insurance coverage for specific job duties, corporate officers, and sole proprietors. In New Mexico, real estate agents and ranchers are exempt from having Workers’ Compensation insurance.

Some states place limitations on where employers can buy workers’ compensation insurance, which will impact the rates. These states prohibit private carriers from providing workers’ compensation coverage and are called monopolistic states.  The monopolistic states mandate that businesses arrange coverage through the state-run workers’ compensation market. The four monopolistic states are:

  • North Dakota
  • Ohio
  • Wyoming
  • Washington

Are you searching for cheap workers’ comp insurance?

Finding affordable workers' comp insurance may seem impossible, as various factors are outside your control. However, you'll spend less in the long term by adopting loss prevention and safety processes today. To lower the cost of your worker's compensation insurance, follow these suggestions:

  • Employee training - Train your employees on how to perform their job functions safely.  Proper training on the machinery and heavy equipment use is not only necessary but may also be mandatory.  See the US Department of Labor,  Occupational Safety and Health Administration (OSHA) website.  Good training can reduce the risk of employees sustaining injuries and equipment damage.
  • Safety standards - Educating employees about workplace safety is not an option in many professions. Part of having a safe workplace is providing the appropriate Personal Protective Equipment (PPE), whether it’s a hard hat, a fluorescent vest, or safety glasses. The purpose of safety protocols, just like proper training, is to prevent injuries and minimize the severity of the injury.
  • Property maintenance -Creating a safe workplace atmosphere can greatly impact employees' health. Evaluate HVAC systems with indoor air quality testing.  Performing vent cleaning to help alleviate allergy symptoms and sinus infections can keep your workforce healthy.
  • Visit OSHA to get your free Small Business Safety and Health Handbook