Work Comp Cost

What Does a Workers' Compensation Policy Cost?

Find out how your policy's premiums are calculated.

Business owner and employee walking through their warehouse with helmets on their heads. Workers Compensation Insurance Cost

No matter what kind of business you run, if it's got employees, you more than likely need workers' compensation insurance. Though this coverage is often mandatory, it's not always cheap. Paying for the medical expenses and payroll of injured employees is a big task and the insurance company charges highly for the risk.

Working with an independent insurance agent can save you tons of time and money when it comes to finding the best workers' compensation policy for your business. Not only can they find you the right policy, but also help you understand what determines its cost. First, here's a closer look at workers' comp costs for businesses.

What Is Workers' Compensation Insurance?

Workers' compensation insurance or workers' comp is a policy taken out by an employer or subcontractor to cover the medical expenses and payroll of an employee or subcontractor who gets injured or ill on the job. Coverage protects both employees and employers, since injured or ill employees cannot sue the business if they have workers' comp benefits.

Most states require workers' comp if your business has at least one employee. It's critical to know your state's requirements for this coverage to avoid hefty fines and other, harsher penalties. An independent insurance agent can help you find out the workers' comp requirements in your area.

How a Workers' Compensation Premium Is Calculated

How an insurance company calculates your workers' compensation premium can be a bit complex. But if you're aware of how your premiums are determined, you can then figure out how to lower your rates. 

The insurance company looks at a variety of risk factors when determining your premiums, such as the following:

1. Your industry: The riskier your business, the higher the workers' comp rate will be. For example, a logger's workers' comp premium could be really expensive, but rates for an office worker could be considerably lower.

2. Classification codes: Classification codes calculate the risk factor associated with your employees' job duties and determine an amount that'll be paid per $100 dollars of that employee's payroll. Clerical workers, for example, have the classification code of 8810, and their rate is $0.35 per $100.

3. Experience modification rating: If your business has three or more years of workers' comp and has been paying at least $5,000 or more in annual premiums, this may apply to you. An experience modification rating is your company's scorecard and tells a carrier your claims frequency and safety practices.

4. Safety: If you hold regular safety meetings, have a safety manager assigned, and keep buildings and equipment up to code, you can get a nice discount on your coverage. 

5. Audits: If you collect proper employee and subcontractor documentation, have waivers signed, and are proactive, you're likely to keep low rates. Showing that you take your business seriously will only work in your favor when it comes to workers' comp premiums. 

An independent insurance agent can further explain how workers' comp costs are calculated, and the rates and mods that may apply to your specific business.

The Formula for Calculating Workers' Comp Premiums

There's a lot of math involved when it comes to calculating the cost of workers' comp. Fortunately, you're unlikely to have to crunch these numbers yourself if you enlist the help of an independent insurance agent. However, it's still helpful to have an idea of what the formula is.

The workers' comp cost formula:

  1. Multiply payroll by class rate, then divide by 100. From the clerical worker example, assuming their salary is $100,000, the formula would look like this: $100,000 x $0.43 = $43,000; $43,000 / 100 = $430.
  2. Multiply the result by your experience rating modifier, if you have one. If you had an experience mod of 0.8, the formula would look like this: $430 x 0.8 = $344 total annual premium for clerical workers with the class code of 8810.
  3. Follow this same formula for all employees and add their totals together to figure out your overall annual workers' comp premium.

Don't let these numbers intimidate you. Your independent insurance agent can help ensure you'll never pay too much for workers' comp coverage.

Workers' Compensation Costs Examples

There are a number of different ways an insurance company ultimately determines your workers' compensation premium. Keep in mind that any quotes you get for workers' comp are subject to change once your business risk factors are further examined by the insurance company.

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Most common costs of workers' compensation by industry

  • Hotels - Depending on what state you reside in, the average cost per employee per hour is $1.0294. Multiply that by 40 hours a week for 52 weeks and you get $2,141 annual cost per employee.
  • Restaurants - Depending on what state you reside in, the average cost per employee per hour is $0.4093. Multiply that by 40 hours a week for 52 weeks and you get $851 annual cost per employee.
  • Construction - Depending on what state you reside in, the average cost per employee per hour is $2.6655. Multiply that by 40 hours a week for 52 weeks and you get $5,544 annual cost per employee.

Is Workers' Comp Required in Every State?

Workers Compensation Map

Workers' comp is mandatory in all states except for Texas. However, the requirements vary by how many employees you have and the type of business you run. In certain states, for example, agricultural workers are not required to be covered by workers' comp. But 74% of states overall require all employers to carry workers' comp.

Workers' Comp Costs for Small Businesses

Median workers' compensation premium by industry

Median workers compensation premium by industry.

The cost of your workers' comp varies based on a number of factors, but it's still possible to offer averages. Small businesses pay about $47 monthly, or $560 annually for workers' comp. 

This is the middle of the pack for small businesses, including size and risk level. Larger businesses or those with riskier occupations, such as the construction industry, will have much higher figures. An independent insurance agent can help find quotes for your location and industry.

Why Are Independent Insurance Agents Awesome?

It’s simple. Independent insurance agents simplify the process by shopping and comparing insurance quotes for you. Not only that, but they’ll also cut the jargon and clarify the fine print, so you know exactly what you’re getting.

Independent insurance agents also have access to multiple insurance companies, ultimately finding you the best workers' compensation coverage, accessibility, and competitive pricing while working for you.

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