FAQ

How much is workers compensation insurance for a small business

The costs of workers’ compensation insurance depend on many factors, such as state regulations, payroll and industry, so it is difficult to determine an exact premium without considering all the characteristics of your business. Employer costs for employee compensation among civilian workers averaged $39.01 per hour worked as of March 2021, according to a 2021 summary report from the United States Bureau of Labor Statistics (BLS). those in less risky industries may pay significantly less.

How are workers’ compensation costs calculated?

The basic formula for calculating workers’ comp costs considers the business’ industry, claims history, and total payroll. Your industry is represented by a class code that’s assigned a rate based on the type of work performed by your employees. That number is multiplied by your payroll divided by $100 and an experience modification rate (EMR) which represents your claims history. The result is your workers’ compensation premium, typically written as a dollar amount per $100 of your company’s payroll. Image of Worker

Reading: How much is workers compensation insurance for a small business

what factors affect the cost of workers’ compensation insurance?

Unfortunately, we can’t say for sure what your company’s workers’ compensation premium is, but we can look at numerous factors that affect each company’s workers’ compensation costs. Companies rarely have the same workers’ compensation premium because if any of these factors are different, the rate is different.

Let’s dive into the top five factors that affect the cost of workers’ compensation insurance, starting with the three used in the formula.

1. payroll

Each workers’ compensation insurance rate starts with your payroll divided by $100, so the more people you hire, the higher your rate will go. however, you should also keep in mind that workers’ compensation requirements vary by state, and while some states require coverage as soon as you hire just one employee, others don’t until you have three or more.

You may also have some people on your payroll who are exempt from workers’ compensation, depending on the laws in your state. For example, as the owner of the business, he is most likely not required to pursue workers’ compensation himself. The same is often true of partners in partnerships, corporate officers, and members of limited liability companies (LLCs).

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2. industry and job classification

Some jobs are riskier than others. a person who works on an oil rig has a much higher chance of being seriously injured than someone who works in an office. the added risk faced by workers in certain industries, such as contracting and construction, makes it more expensive to insure those people.

sample workers compensation costs for small businesses by industry

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To quantify increased risk, states assign each type of job a class code which is then assigned a base rate according to its risk of injury. there are 38 states that use class codes designed by the ncci. others use third party rating bureaus and some create their own systems.

Most states assign businesses a ruling class code that represents the majority of their operations, but some states assign codes to all employees. some only assign class codes based on the type of employees for certain industries. Several states identify some jobs as standard exemptions and rate them separately from the governing class code because they are common to most businesses or pose limited risk. office workers and outside sales staff are two common examples of standard exemptions.

3. mr

the emr is a multiplier that represents your claim history. when factored into the equation, your rate may go up or down, depending on how your claims history compares to similar businesses. Your state workers’ compensation board or ratings office determines your EMR by comparing your previous workers’ compensation claims with similar businesses. EMRs typically range from 0.75 to 1.25, and companies with lower EMRs typically pay less for workers’ compensation insurance.

4. state insurance factors

Because coverage is regulated at the state level, workers’ compensation insurance costs are different from state to state. A state that pays more benefits to injured workers for a longer period of time will likely have higher workers’ compensation costs. Similarly, a state where major industries are high-risk will typically have more injuries and, in turn, higher workers’ compensation rates.

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Some states also offer discounts to employers for doing things to improve safety and reduce claims. for example, many states have discounts for creating a drug-free workplace, establishing safety committees, and implementing fall protection programs.

5. insurer and provider

Once all other factors are defined, all business owners should compare workers’ compensation insurance costs among insurance providers. Some workers’ compensation insurance companies have higher rates than others, but this is not a standard rule. Every trader has what is called a “risk appetite.” if an industry is in a carrier’s appetite, rates are typically more favorable than a carrier that has no appetite for risk.

the cost of not having workers’ compensation insurance

Business owners risk fines and even jail time if they don’t have workers’ compensation insurance, depending on the laws of their states. For example, failing to carry workers’ compensation in Pennsylvania is considered a third-degree felony and can result in a $15,000 fine and up to seven years in jail. In California, penalties can reach up to $100,000 in fines.

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Even if you’re not required to have workers’ compensation, you may still want a policy, especially if you’re in a high-risk industry. An injured employee may hold you responsible for your medical costs in some situations, and a workers’ compensation policy provides protection against those costs.

how to get the best rate on workers’ compensation insurance

Your company’s workers’ compensation rate is set in some way, based on your payroll, worker classification codes, and EMR. however, like many other types of business insurance, there are ways to save on your workers’ compensation policy.

1. compare prices

If you’re in a state that offers a competitive market for workers’ compensation, shop around for rates with different carriers. review your costs every few years to make sure you’re still getting the best price. when you do this, check the terms of the policy as well. you don’t want to sacrifice quality coverage for a lower price.

2. maintain a safety program at work

Because your experience modifier affects your workers’ compensation insurance costs, you want to keep a clean claims history. One way to do this is by implementing a workplace safety program, both inside and outside of your facility. Well-trained employees who follow all recommended safety standards can help you reduce worker injuries.

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3. create a return to work schedule

Establishing a return-to-work program can help you retain valued employees. These programs are designed to help injured workers return to work as soon as they are medically able. while they recover, you can provide them with an alternate role to get back to work more quickly. Many companies offer premium credits or discounts to business owners who offer return-to-work programs. Even if you don’t get a discount, a return-to-work program can save you the cost of hiring new employees.

4. check the classifications of your workers

Make sure your employees are correctly classified on your workers’ compensation policy. a misclassification can lead to unnecessarily higher costs. For example, a landscape service company may have more than just workers working outside; You could also have an office assistant or sales professional. These workers are in a different class than landscapers and likely have lower job classification qualifications, which means lower rates.

5. consider getting a pay-as-you-go plan

Workers’ compensation insurance premiums are traditionally based on payroll projections, so insurers audit policies at the end of the term to make sure you’ve been charged the proper amount. however, many insurers now offer workers’ compensation on a pay-as-you-go basis. These plans make monthly adjustments to your premium based on your actual payroll costs and the employee’s job classification. more accurate billing reduces the chance of a shockingly high post-audit bill; Plus, pay-as-you-go plans typically require a lower down payment than traditional plans.

end result

It’s difficult to predict the exact cost of your company’s workers’ compensation insurance without considering the unique factors that define your company. Industry, payroll, and state laws all play a role in determining your workers’ compensation premium, and no two companies will have the same premium costs.

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