Workers Comp Insurance: How Premiums Work

Workers compensation insurance pays for employee injuries and illnesses arising from work - medical care, wage replacement and rehabilitation - and protects the employer from lawsuits over those injuries. It is required in nearly every state for employers with even a small number of workers, and its cost is driven by what your employees actually do.

The premium formula

Workers comp is priced per $100 of payroll, multiplied by a class rate set for each type of work.

Premium = (payroll ÷ 100) × class rate × experience modifier

What drives the class rate

• Job classification. Clerical office work is cheap; roofing, logging and trucking are expensive because injuries are severe and frequent.
• State. Rates vary widely by state because each has its own benefit levels and legal climate.
• Payroll. Higher payroll means higher premium, in direct proportion.
• Claims history. Captured in the experience modifier.

The experience modifier

Larger employers get an experience modification factor - an "ex-mod" - that compares their claims history with what is expected for their industry. A 0.80 modifier cuts premium by 20 percent; a 1.20 adds 20 percent. A single serious claim can raise the modifier for three years, which is why return-to-work programs and safety training pay for themselves.

How to lower the cost

• Classify workers correctly - misclassification is a common and costly error on audit.
• Implement safety programs and documented return-to-work policies.
• Report small claims promptly and manage them actively.
• Compare carriers, since rates for the same class can differ.

Frequently asked questions

Do I need it for one employee? In most states, yes, even for a single employee. Some states exempt very small employers or certain owners.

Are owners covered? Rules vary; many states let certain owners exclude themselves, and some require coverage.

Estimate your premium with the calculator below.