How Much Does Workers' Comp Insurance Cost?
Businesses pay a national average of $1.31 in workers’ comp insurance for each $100 of payroll. If your annual payroll is $500,000, that makes your annual premium $6,550.
But how much you ultimately pay for workers’ comp depends on your business’s location, payroll amounts, industry, employee count, claims history, and more.
Most states require workers’ comp even if you only have a few employees because it helps workers get better from job-related injuries and illnesses and earn benefits until they’ve recovered.
Workers' Comp Rates Across the US
Let’s look at the states with the highest and lowest workers' compensation rates in the United States. Knowing where your state falls on the spectrum can give you an idea of whether you can expect to pay more or less than average for your premiums.
Top 10 Most Expensive States for Workers’ Comp
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How to Estimate Workers' Comp Cost for Your Business
The formula for estimating workers’ comp cost is:
(Annual Employee Gross Payroll / 100) x Class Code x Experience Modifier = Estimated Workers’ Compensation Cost
Here’s what you need to do to fill in your business’s numbers:
- Determine total payroll: Calculate the total annual payroll of your employees, considering salaries, wages, and any other forms of compensation.
- Classify your employees: Many Insurance companies use data from the National Council on Compensation Insurance (NCCI) to guide their workers’ compensation insurance rates.
The NCCI determines the financial level of risk—and the premium rate per $100 in payroll—associated with each type of work. This is known as a class code. Most states use this class code system, so you can use the NCCI Code List to classify your employees.
If your state uses a different classification system, you’ll need to see your state’s governing authority on workers’ comp class codes. For example, California uses the Workers’ Compensation Insurance Rating Board of California (WCIRB).
- Multiply by your X-Mod: An experience modifier, or X-Mod, is a unique rating assigned to each business that reflects its workers' compensation claims history. Your insurance broker can let you know your number if you’re unsure.
- Calculate your estimated cost: Plug your numbers into the formula to get your estimated cost. Remember that this estimation is a rough calculation. The actual premium may vary based on the additional factors listed further below.
What Affects Workers’ Compensation Insurance Costs?
Some primary cost factors that impact workers' comp rates are:
Your Industry and Employee Class Codes
Businesses in high-risk industries like construction or transportation tend to pay higher premiums because workplace injuries are more likely.
The same is true for employees’ line of work. You can expect to pay more for a roofer than for an administrative assistant since roofers are much more likely to get hurt while working.
Your Annual Payroll
When calculating premiums, insurance companies typically use your total annual payroll from the previous year as an estimate for the current one.
Toward the end of the year, they compare your estimated and actual payroll numbers to determine your final premium. Insurers then send an audit bill for the difference between how much you’ve paid and what you owe.
If your business didn’t change much from one year to the next, your audit bill likely won’t be anything special.
But if you’ve experienced a business boom or slow-down, you might realize you over or underpaid for your workers’ comp—by as much as tens of thousands of dollars.
If you paid too much, you’ll have missed the opportunity to invest that money back into your business throughout the year. If you paid too little, you may be faced with a bill that cripples your cash flow and leaves you scrambling to come up with the funds.
Hourly is different because your workers’ comp premiums are based on real-time payroll numbers—not estimates. By linking your time tracking and payroll to your workers’ comp policy, Hourly recalibrates your premiums every month, so you pay exactly what you owe. That makes your audit bills next to nothing.
Your Employee Count
Not only does your payroll increase with your number of employees, but so does the injury risk and your workers’ comp rates. That’s because the more workers you have, the likelier it is that one of your employees will experience a work-related injury or illness.
Your Claims History
Businesses are given an X-Mod rating depending on their claims history, with the average being 1.0. A higher number means your company has a higher-than-average claims history, while a lower one shows you have a better-than-average safety record.
Insurance providers multiply your X-Mod by your premium. A business with a strong track record of safety and few claims generally pays lower rates than a business with a history of frequent accidents and workers' comp claims.
Your Business’s Location
Unless you live in Texas or South Dakota, you likely need to cover your employees with workers’ comp insurance. Most state workers’ compensation laws put the threshold at having one employee. So if you employ at least one person, you’re required to have workers’ comp for them.
A handful of places, like Arkansas, Florida, and Tennessee, have a higher threshold of three and five employees, depending on the state.
While almost all states let you buy your insurance from private companies or the state fund, you can only use the state fund in the four states below.
- Ohio
- North Dakota
- Washington
- Wyoming
A state insurance fund is a government-operated organization that provides workers’ comp within that state. Because it’s a less competitive market, you could end up paying more for workers’ comp.
Some states also have unique workers’ comp laws requiring you to have workers’ compensation coverage when you’d otherwise be able to skip it. In California, for instance, roofers and licensed contractors working in the following areas need workers’ comp coverage even if they don’t have employees:
- Concrete
- Heating
- Ventilation
- Air-conditioning
- Asbestos abatement
- Tree service
How to Get the Best-Priced Policy for Your Small Business
You can lower your workers’ compensation insurance costs by:
Training Employees
The more your employees know about their jobs and workplace safety, the lower the risk of injuries—and the lower your premium rates. Invest in regular training and development programs, so your employees are better prepared to handle their tasks with minimal risk.
Prioritizing Health and Safety
Maintaining a safe work environment is essential for your employees' well-being and reducing the average cost of workers' comp coverage. Consider providing ergonomic workstations, proper ventilation, and regular breaks to promote overall health and productivity.
Identifying and Removing Hazards
Regularly assess your workplace for any potential dangers and take steps to remove or remedy them. Encourage employees to report any injury risks they identify to promote a culture of safety and reduce the likelihood of accidents.
Switching to a Pay-as-You-Go Insurance Policy
If your business experiences fluctuations in its annual payroll or sees seasonal changes in staffing, consider switching to Hourly’s pay-as-you-go workers' compensation policy.
This policy type allows you to adjust your workers’ compensation coverage based on your current payroll, helping you avoid overpaying during slower periods and ensuring adequate coverage when you have a larger workforce.
Workers’ Comp & Payroll: Better Together
Hourly works with A+ rated insurance carriers like Nationwide. Ask your insurance agent or broker how much you can save by using real-time payroll data to calculate your premiums.
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