Workers Compensation Insurance Policy: Cost and Coverage

Workers Compensation Insurance Policy: Cost and Coverage

Workers’ compensation insurance cost is the total annual premium to cover all employees under a workers’ compensation policy. For small businesses, this can range from a few hundred to a few thousand dollars annually. For example, a business with a payroll around $100,000, might have an annual workers’ compensation insurance cost ranging from $700 to $3,000.  That said, a number of factors influence workers’ comp insurance premiums. So, how much does workers’ compensation insurance cost? It depends. It depends on your industry, where you’re located, the size of your business, and your claims history. We’ll explain.

Workers’ Compensation Insurance Cost

Many small firms are required to carry workers’ compensation insurance, sometimes known as workers’ compensation. The overall premium for this type of insurance is the cost of workers’ compensation insurance. This is frequently displayed as the annual premium sum, though it may also be reported as the monthly payment. If at all possible, avoid conflating this with the workers’ compensation rate, which we go into more depth about below.

Unlike other small business insurance policies, workers’ compensation is regulated at the state level, so rates and coverage requirements differ from state to state. Almost universal, however, is that employers are legally required to carry workers’ compensation insurance that covers all employees on their payroll. Also, workers’ compensation insurance expenses must be paid by the employer — they cannot be passed along to employees.

Cost for Small Businesses

Many small firms are required to carry workers’ compensation insurance, sometimes known as workers’ compensation. The overall premium for this type of insurance is the cost of workers’ compensation insurance. This is frequently displayed as the annual premium sum, though it may also be reported as the monthly payment. If at all possible, avoid conflating this with the workers’ compensation rate, which we go into more depth about below.

Workers’ Compensation Insurance Rates

When talking about how much workers’ compensation insurance costs, it’s usually expressed in the total annual insurance premium. After all, this is the bill the employer is legally required to pay to maintain compliance with state law. If you see prices expressed in just dollars and cents — for example, $1.25 — this is probably a workers’ compensation insurance rate.

The rate is used to calculate the insurance premium, so it has a direct impact on total work comp insurance costs. The reason the rate seems suspiciously low is because it’s expressed per $100 in payroll.

In other words, for a small business with a rate of $1.25 and a payroll of $60,000:

$60,000 / $100 = 600

600 x $1.25 = $750

This small business would have a baseline insurance price of $750. If payroll were $30,000, this amount would be closer to $375 annually.

Classification Codes

Classification codes (“class codes”) are key to determining the final cost of a work comp premium. Defined by the NCCI or the state, class codes are assigned to a business based on the type of work employees do. This code corresponds to a standardized list of industries, and it’s a way for insurance carriers to categorize companies.

Examples of Workers’ Comp Class Codes

Carpentry (5403)

• HVAC (5537)
• Janitorial services (9014)
• Landscaping (0042)
• Plumbing (5183)
• Coffee, tea or grocery dealer – Retail & salespersons (8017)
• Clerical office employees (8810)

It’s important to note that some businesses have only one class code, whereas others may have several. A carpentry business, for instance, may have a governing class code of 5403 as well as class codes for clerical and sales employees.

Additionally, NCCI gathers a wealth of information on accidents and claims, and it offers insurance companies advice rates that take into account the proportional risk of workplace accidents. If your industry is regarded as high-risk, particular class codes may be more challenging or more expensive to insure. Each carrier has its own methods for assessing risk and determining premium amount. Trade contractors, for instance, will pay more for insurance than office employees.

It is preferable to engage with an insurance agent that specializes in work comp to determine your class code. They can assist you in classifying your company as properly as possible, modifying your class code as necessary, and avoiding paying the incorrect rate for the incorrect classification.