Estimated reading time: 5 minutes
- How Much Is Workers Compensation Insurance?
- Workers Compensation Insurance Calculation
- Class Codes and How They Affect the Workers Compensation Insurance Rate
- What Is the Experience Rate Modification?
- How the State Affects the Workers Compensation Insurance Rate
- Is It Possible To Lower the Cost of Premiums? If so, how?
- Where Do I Begin?
Return To: Workers Compensation Insurance – The Ultimate Guide
If a business employs more than two people, it’s required by law in some states for the business to have workers compensation insurance coverage. Workers compensation insurance coverage, also called workman’s comp, provides benefits to employees who attain injury or incur sickness while performing duties within the scope of their job posting.
These benefits cover lost wages, hospital, and medical expenses, rehabilitation, and even (God forbid!) death-related costs for the employee’s family should death occur while on the job. You can read more about what this does and doesn’t cover here.
A workers compensation insurance policy is purchased by the business itself from an insurance provider and looks to offer some form of protection for both the business and the employee, though some states have available funding for this type of insurance and actually prohibit private insurance companies from offering this as part of their insurance plans.
How Much Is Workers Compensation Insurance?
Depending on your location, each state has its own way of calculating the workers compensation insurance rate. The more employees you have, the higher in premium you’ll have to pay. The premium rate also depends on the nature of your business and if there is a significant probability of attaining workplace injuries.
Workers compensation insurance premiums usually depend on:
- Where your employees work (which state)
- How many employees you have
- What type of business you operate
- What type of work is done by your employees
- What sort of claims history your company has
- How much your annual total payroll is
The type of work that relies heavily on the physical strength of your employees (such as construction, landscaping, and cleaning services) typically would pay higher in premiums for this kind of insurance as there is a higher risk of workplace accidents.
What’s unique about this insurance policy is that the rates tend to decrease over time as overall workplace security tends to improve.
There is also no “set” or average cost of workers compensation insurance. A business will typically pay anywhere from $600 to $1,500 per year.
Workers Compensation Insurance Calculation
A simple formula you can use to give you a ballpark figure on how much you’ll have to pay for workers compensation insurance is:
Premium = (Payroll/$100) x Class Code Rate x Experience Rate Modification
We’ll explain all these variables one by one.
Class Codes and How They Affect the Workers Compensation Insurance Rate
The National Council on Compensation Insurance (NCCI) lists over 700 class codes. The class codes depend on the job type and what the level of risk for each job type is. This helps determine how much a business will have to pay for workers compensation insurance.
Class codes are determined by risk factors, and the higher the risk factor is, the more you’ll have to pay for a premium. A business in finance and accounting definitely won’t pay as much as, say, the construction business, because its workers aren’t in any obvious immediate danger.
What Is the Experience Rate Modification?
Your business’ claims history determines the experience rate modification. A number greater than 1.00 means that your business has quite a history of claims, and any number below 1.00 means a good claims history.
How the State Affects the Workers Compensation Insurance Rate
Policies and regulations for the workers compensation insurance rate vary vastly among states.
Certain employers and natures of businesses are exempt from this policy, like sole proprietors in New York, and real estate agents in New Mexico for example.
The number of employees you have also plays a factor. In some states, if your business has less than five employees, you are not required to have any coverage. In Alaska, however, if you are a business owner and you have even a single employee then you are required to have a premium.
Is It Possible To Lower the Cost of Premiums? If so, how?
It’s not possible to change the nature of your business in order to save up on insurance costs, but there are a few ways that you can make your workplace safer for your employees and minimize workplace risks and injuries. Here are some examples of this:
- Conduct thorough employee training: Prior to onboarding your employees, make sure that they have gone through the necessary training on how to safely do their jobs.
- Provide the appropriate gear: Make sure that your employees have the correct safety equipment. Make sure to also check and update their tools regularly.
- Ensure the proper signages are in place: Equip your location with labels and signs to alert them of safety issues, such as slippery surfaces, dangerous chemicals, or electrical surfaces.
You can also opt to pay your premium annually to save up on costs. Some insurance companies offer discounts to businesses that pay their premiums in full, all in one go.
Where Do I Begin?
Buying a workers compensation insurance policy for your business can seem scary upfront, especially if you don’t know where to begin or how to do the proper calculations. There are also state factors that you have to take into consideration which can make it all the more confusing.
That’s why it’s important to consult a trusted insurance company that has the knowledge and expertise on workers compensation insurance rates.
At ALLCHOICE Insurance, we can help you get the best coverage specifically suited for your business’s needs and budget. Contact us to get a quote today!