Workers’ compensation is an insurance product employers are required to have in many U.S. states. As a business owner, you are asking yourself, how are premium determined? What are the factors?
In the conclusion of this article, you will understand factors are used to determine your workers’ compensation premium. Let’s get started.
Overview of Workers' Compensation
If an employee gets wounded, injured, or sick. The employee has the opportunity to file a workers’ compensation claim to receive a benefit, would cover the medical expenses, missed wages, and other related expenses. The number of benefits, which are attained by the affected worker(s) are reliant on the laws of each U.S. state, and in most of the cases, it is a certain ratio of their weekly wage. So, it can be easily ascertained that the weekly wage is a core factor that determines what will be received by the employee in the shape of compensation. The agency or committee which is responsible for authorization of this compensation in each state tends to use average weekly pay for calculations.
The factors which contribute towards employee average weekly wage are:
– The total time for which the worker was employed, e.g., 3 days a week.
– Whether if the employee worked in the same field for one entire year.
– To determine if the worker was full time or temporary or only seasonal.
In the majority of cases, the average wage is measured by multiplying the employee’s annual wage by the total number of days worked, and then dividing that figure by 52 weeks to calculate the average wage on weekly basis. This can be simplified with the help of the following example:
– A worker who works full time, earned $40,000 last year by working 232 days.
– Divide $40,000 by 232 which will be equivalent to $172.41 and is the employee’s daily wage.
– Then multiply $172.41 by 260 – the number of days a full-time employee would work in a year. This equals $44,635.19.
– Divide $44,635.19 by 52, which is the number of weeks in a year. The employee’s average weekly wage is $858.36.
Workers’ Compensation Calculator
If you have payroll information available, below is an equation that can provide you an estimation of premium:
Class Code Rate X Experience Mod. X (Payroll/$100) = Premium
However, other factors not included in the equation: number of employees, claim history, state rates, etc also impacts the premium.