The Factors of Workers' Compensation Cost
While buying insurance, most business owners have this common question in mind: how much does workers’ compensation costs? Workers’ compensation is an insurance policy designed to protect both employers and employees in the case of a workrelated accident(s) or injurie(s).
The cost of this workers’ comp policy varies in different states and is dependant on various factors. Generally, it can range from $0.57 to $2.32 per $100 of payroll covered by insurance. Here is a report from the NASI (National Academy of Social Insurance) discussing the average cost of workers’ compensation per state.
The major factors considered by insurers that affect the cost of workers’ compensation are:
Location of Work
The cost of workers’ compensation is regulated at the level of state so the requirements of the particular state in which the business is located would affect the cost.
The rates are typically set by the combination of risks involved, levels of benefit, medical fees and specific laws of the state regarding the business. UnderWrite Insurance Services can help you determine the workers’ comp rate in your state.
Class Code
The nature of the work done by your employee affects the overall cost of workers’ comp. Different types of work are classified into categories with the help of codes known as “class codes”. Depending on under which class code your employee falls, the costs of workers’ comp can be higher or lower. The construction and manufacturing businesses have a high risk of injury or accident to an employee during work so they have a higher cost of workers’ comp. Class codes would determine the basic rate according to the risk associated with a certain profession and then the insurer would adjust your cost by risk evaluation in your company as compared to others in the industry.
Payroll
The size of the total payroll of your business also directly links to the workers’ comp costs. The audit of workers’ comp would compare the estimated payroll provided by the employer at the beginning of policy year to the size of the actual payroll towards the end of the period and the costs are adjusted accordingly. Each class code has a specific rate per $100 through which total costs are calculated. For example, if a company has 3 employees with a total annual payroll of $140,000 and the rate per $100 of $0.12, then the rate for annual payroll would be $168. The payroll can include salaries, wages, bonuses or payment for overtime.
History of Claims
If you are not new to the industry, then according to law, insurers consider the history of claims as well in determining the workers’ comp costs. An “experience mod” value of 1.0 is considered average and the higher or lower than 1.0 value affects costs accordingly.
Apart from the abovementioned factors, regularly check the updated laws for complete information on workers’ comp costs.
