The cost of a workers compensation policy depends on several factors. This could be where your business is located, how many employees you have, or whether your business is considered high-risk for injury. Because workers comp laws vary from state to state, businesses may pay more or less depending on their location in the US. Workers compensation policies in Texas, for example, are $.57 per $100 of covered payroll range–some of the cheapest rates in the country. Your business’s net profit, payroll, and prior claims history will also be taken into account when getting a quote for workers comp coverage. High-risk businesses such as construction and contracting typically have more expensive coverage, while low-risk industries like office and computer jobs tend to have much lower rates.
- What affects the cost of workers compensation insurance?
- How to calculate the cost of workers compensation insurance?
- What is the classification code and how does it affect the cost of workers compensation insurance?
- What is the experience modification rate and how does it affect the cost of workers compensation insurance?
- How much does workers compensation cost?
- How much does workers compensation insurance cost by states?
- How much does workers compensation insurance cost in California?
- How much does workers compensation insurance cost in Florida?
- How much does workers compensation insurance cost in New York?
What affects the cost of workers compensation insurance?
How much you pay for workers compensation insurance depends on several factors, such as:
- What state you live in
- Annual payroll
- What type of work you do
- Claims history
Construction companies pay more because of the riskier nature of their business—20% of worker fatalities occur in construction. Roofing is also risky. And if you have a history of making workers compensation claims, you’ll pay a higher rate. However, on the plus side, workers compensation insurance tends to go down over time as workplace safety improves.
How to calculate the cost of workers compensation insurance?
Calculating the costs of Workers’ Comp insurance may seem confusing at first glance, but there’s actually a relatively simple formula used to calculate Workers’ Compensation cost for a business. This is expressed by the formula below:
- Formula: Classification rate x Experience modification rate x (Payroll / 100) = Premium
While you probably won’t need to know this exact formula, it always helps to be knowledgeable about the process, and how insurance companies calculate their quotes and rates.
What is the classification code and how does it affect the cost of workers compensation insurance?
You might be wondering what an employee classification rate is and where to find it. Every employee classification has a 4-digit number which is code for what sort of work they do. Most codes are set by the National Council on Compensation Insurance (NCCI) although some states set their own codes (California, New Jersey, New York, Delaware and Pennsylvania). You can find the list of codes by the NCCI here.
Employer payroll is what you pay per $100 of payroll. So, pretend your employee has a class code of 1234, which translates to a $1 in workers compensation. You will pay $1 per employee for every $100 of payroll in workers compensation insurance. If you have 12 employees, you will pay $12 for every $100 in payroll. The more employees you have, and the more payroll your business pays, the more expensive workers compensation insurance is.
For example, roofers pay about $19 per $100 in payroll, making them the most expensive employee to insure, whereas office workers doing clerical work pay about $0.35 per $100, making them among the least expensive.
What is the experience modification rate and how does it affect the cost of workers compensation insurance?
The experience mod rate is how your business compares to other, similar businesses. It’s based on things like how old the business is and the number and severity of workers comp claims. Experience mod rates start at 1.0 and go up if you’ve had claims and down if you don’t. A credit experience mod rate is anything less than 1.0 and a debit mod is anything more than 1.0.
If you’ve just started your business and therefore have no claims one way or the other, you’ll probably pay a little more. The rate will be adjusted as time goes on.
The experience mod rate is the only part of the workers compensation insurance formula that you can control. Since it’s based on claims history, if you make your workplace a safer environment, you will (eventually) pay less in insurance.
How much does workers compensation insurance cost?
Small business owners pay an average of $47 a month or $564 a year. Construction pays the most, at an average rate of $3,264 a year, and accountants pay the least, at $396 a year.
The average cost of a Workers’ Comp claim is $40,000, meaning you’ll be saving quite a bit of money if you have an insurance policy that adequately covers the injury or damages. Most small business owners pay between $400-800 per year per full-time employee. Even if your rates are slightly higher, you’ll still be grateful you had Workers’ Comp coverage in the long run if you ever have an unfortunate workplace injury to one of your employees.
The only way to know exactly how much Workers’ Compensation Insurance costs your business is to get a quote for your business. You should always get at least 3 quotes from 3 different companies or work with a digital broker like CoverWallet to get several quotes at once from the companies that they partner with. Comparing several quotes is the only way to ensure that you are able to get the cheapest quote for your business.
How much does workers compensation insurance cost by states?
States have their own requirements for workers compensation insurance, and whereas most of them rely on the NCCI, some don’t. Furthermore, some states only allow employers to purchase workers compensation insurance from a state fund: North Dakota, Wyoming, Ohio and Washington.
According to the Oregon Department of Consumer and Business Services, the national median rate for workers’ compensation currently stands at $1.70 per $100 in employee wages, the lowest it’s been since 1986.
In the US, there are 38 states with rates below $2 per $100 in employee wages. The states with the five lowest rates are: Utah, North Dakota, Indiana, Arkansas, and West Virginia. The rates for those states are listed below.
Which states has the cheapest workers’ compensation insurance cost?
- North Dakota: $0.82
- Indiana: $0.87
- Arkansas: $0.90
- West Virginia: $1.01
- Utah: $1.06
North Dakota was the state with the lowest workers’ comp insurance rate in 2018, meaning if you live there, you’ll be able to get coverage for a lot cheaper than if you lived in, say, New York.
The states with higher rates tend to have stricter laws and more at-risk jobs. In New York state, the rate an injured worker can be paid after a claim has steadily risen, doubling in the past 20 years. These rates are based on several factors, including new legislation, business lobbies, insurance providers, and unions on workers’ compensation benefits.
As of 2018 New York has the highest Workers’ Comp rate in the US, at more than $3 per $100 in employee wages. Close runners-up are California, New Jersey, Alaska, and Delaware.
Which states have the most expensive workers’ compensation insurance cost?
- New York: $3.08
- California: $2.87
- New Jersey: $2.84
- Alaska: $2.51
- Delaware: $2.50
Even if you live in a state like New York or California, don’t worry. You should still be able to get affordable Workers’ Compensation coverage. In fact, the median rates of Workers’ Comp coverage have been trending down in the last ten years, so policies are cheaper than ever. Below you’ll see the list that illustrates this trend:
Median cost of workers compensation insurance (per $100 of payroll) for the previous five years:
- 2018: $1.70
- 2016: $1.85
- 2014: $1.85
- 2012: $1.58
- 2010: $2.04
- 2008: $2.26
As you can see, the median rate for Workers’ compensation in the United States is cheaper than it was ten years ago.
How much does workers compensation insurance cost in California?
California requires workers compensation insurance if you have even one employee, even if they’re part-time. California workers compensation insurance costs $1.56 per $100 of payroll. This is multiplied by the class code of the employee and then multiplied by how many employees you have. Some examples of how much different class codes will cost you:
- Clerical: $.040
- Restaurant/Bar staff: $4.34
- Plumbing: $7.01
- Masonry: $14.63
- Laborer: $33.57
Clerical is the cheapest classification, and laborers are the most expensive, at $33.57.
Even if most of your company’s employees are in clerical class, you should still shop around to find the best rate. Here is our recommendation of the best (and cheapest) providers of workers compensation insurance in California.
How much does workers compensation insurance cost in Florida?
You need workers compensation insurance in Florida if you have four or more employees, part-time or full-time. Since Florida goes by the NCCI codes, shopping around for workers compensation insurance will get you quotes that only vary by a few dollars, if at all. The rate in Florida is $1.30 per $100 in payroll.
You also need workers compensation insurance in Florida if you work in construction, even if you are self-employed.
Your rates will also vary by the class codes of your employees. Some examples are:
- Anti-toxin manufacturing: $0.51
- Dental laboratory: $.069
- Jewelry store worker: $0.50
- Stevedore: Containerized freight and drivers: $23.39
- Roofing: $13.30
- Insurance claims adjuster: $0.52
For a complete list of class codes in Florida, click here.
Here are our recommendation of the best (and the cheapest) providers of workers compensation insurance in Florida.
How much does workers compensation insurance cost in New York?
Workers compensation insurance is required in New York state if you have any employees at all.
The good news if you’re a New York employer is that workers compensation rates have gone down and are now at $1.41 per $100 of payroll. You multiply that by the class code dollar number, and then multiply that by the number of employees you have.
Some examples of what you’ll pay for different occupations by class code:
- Jewelry manufacturing: $0.53
- Bookbinding: $3.15
- Road construction: $13.74
- Asbestos Contractor: $29.64
- Clerical: $0.13
- Healthcare: $4.53
For a complete list of class codes in New York State, click here.
Here are our recommendation of the best and the cheapest providers of workers compensation insurance in New York.
What does workers compensation insurance cover?
Workers compensation insurance covers your employees if they should become injured on the job. That’s why professions like contractors pay more for workers compensation insurance: you’re more likely to be injured by constructing a builder than you are figuring out someone’s taxes.
Workers’ compensation covers:
- Missed wages
- Medical expenses
- Vocational rehabilitation (to help your employee get back to work, or to train them to do something else)
- Death benefits
Almost every state requires workers compensation in some way, except for Texas. Most states require it if you have even one employee. Usually, the only people exempt from workers compensation are:
- Independent contractors
- Domestic employees
- Musicians and performers
Every state has different rules around workers compensation insurance, so be sure to check with your state to make sure you are complying. The penalties for not having workers compensation insurance can be severe.
Even though your Workers’ Compensation rates are based on a number of different factors, you should be able to find a policy that works for you. A good coverage policy will take into account the size of your business, the location, if it’s at a high risk for injuries, and other considerations to determine the price. Fortunately, it’s easy to compare quotes online and find a provider that suits your small business. Read further to see how you can compare and contrast different insurance carriers to find the best possible rate.