What Affects Workers’ Compensation Cost
What drives workers’ compensation premiums: payroll, job classifications, experience modification, claims history and audits, and ways to manage costs.
Payroll, class codes, experience mod and audits, explained without jargon.
The basic formula
Workers’ compensation premium is generally calculated from your payroll in each job classification, multiplied by the rate for that classification (per $100 of payroll), then adjusted by your experience modification and any credits or surcharges. Rates are set under state rules and by insurers, so they differ by state and carrier.
Payroll
Payroll is the wages you pay employees. The policy is first priced on an estimate, then reviewed at audit against your actual payroll, so an accurate estimate helps avoid surprises.
Job classifications (class codes)
A class code describes the type of work an employee does, and each code has its own rate. Clerical office work is rated far lower than higher-risk work such as trucking or construction. Placing employees in the wrong classification can mean overpaying, or a large additional bill at audit, which is why we ask for each job’s duties and how many employees perform it.
Experience modification
The experience mod compares your claims history with other businesses of similar size and type. A mod of 1.00 is average; below 1.00 earns a credit and above 1.00 adds a surcharge. Safer operations with fewer and smaller claims generally see their mod improve over time.
Other factors
- State and carrier rates and underwriting rules differ.
- Business type and size the mix of work you do.
- Safety and claims management safety programs, prompt reporting and return-to-work help.
- Credits and discounts depending on the carrier and your situation.
Ways to manage cost responsibly
- Classify correctly describe real job duties.
- Keep clean payroll records it makes audits straightforward.
- Invest in safety fewer injuries mean fewer claims.
- Report injuries promptly and follow return-to-work guidance.
- Compare options ask for a quote and review the differences.
Questions
Why did my premium change at audit?
The estimate on your policy is replaced by your actual payroll and classifications at audit. If payroll grew or employees were reclassified, the premium changes with it.
Can you tell me the cost without a quote?
No. Cost depends on your payroll, classifications, state, claims history and carrier. A quote request gives you real numbers for your business.