Curious, what is workers’ compensation insurance cost for your business? Are you looking online for the best workers compensation insurance quotes? or Are you asking, how are workers compensation premiums calculated and what can you do to reduce the cost of workers compensation insurance in your firm?
Table of Contents
I’m going to answer these questions and a lot more in this article, so keep reading!
What is Workers’ Compensation Insurance?
Workers’ comp is generally mandatory for any company that has employees in almost all states in the us, there are some exceptions to that rule but for the most part, if you have employees you need to have workers’ compensation insurance.
The purpose of workers comp is to cover employees for on-the-job injuries, and illnesses and pay for the medical bills that arise from those injuries and illnesses as well as pay for a portion of lost wages due to time away from work for recovery.
The rates for workers’ comp are different from state to state and reflect the medical costs and wage benefits in each particular state.
The core premium for workers compensation is based on two factors:
- The first the rate for each classification of workers on the policy
- The amount of payroll in each of those classifications for the year
Now in addition to those two factors there are several other multipliers factors and elements that come into play.
Table of Contents
What is a classification?
A workers’ comp classification is the category of work generally performed by the business or the employee, there are hundreds of classifications in the workers compensation rating manual and there are several rules governing how to apply those classifications.
Generally speaking, the operations of the company let’s take as an example landscaping company will mandate that the landscaping class could be used for all the employees there are general exceptions to this rule such as clerical employees that work strictly in the landscaper’s office.
When you look at the workers comp manual under landscaping it’ll indicate a rate which is then multiplied by the payroll of the landscape workers per one hundred dollars meaning that if there’s a hundred thousand dollars of payroll you would take the rate times 1000. this produces your standard premium.
Now in many states the rates in the workers’ comp manual are known as loss cost rates which need to be multiplied by an insurer’s loss cost multiplier.
In New York, for example, each insurer may have several lost cost multipliers for each of their writing companies which provides them reading flexibility to charge a final rate that’s commensurate with the risk.
And that brings us to a big point I want to make, Risk! the workers’ compensation insurance cost is greatly influenced by risk in two ways:
- The risk characteristics of what you do companies (In construction, contracting manufacturing, and distribution generally will have higher base rates for workers’ comp than an office professional services, financial services retail and similar low impact low risk type of industries.)
- Your company’s level (For example, a manufacturing firm, a manufacturer that does a good job, managing risk safety and compliance for its employees will have a lower workers’ compensation insurance cost rate than a firm that doesn’t have any risk control game plan.)
Usually, the difference between the two types of firms I just mentioned those with a good plan and those without a plan are differentiated by their loss or claim history which is also a big determinant of what you will be charged for workers’ compensation insurance.
What other factors determine workers’ compensation insurance cost?
Well the size of your premium the larger your premium the greater the size discount is applied to your premium.
In addition, your loss history as I mentioned above your workers’ compensation claims will influence your final premium and are used in something called the experience rating modifier.
As I mentioned earlier, each state’s rates differ from one to another and in a state like California you can expect to pay more than in a state like Texas.
Another factor is the insurance company you’re insured with now this is a big question mark for a lot of buyers, how do they find the insurance company with the lowest rates or the biggest discounts.
All the different rating factors I just ran through means that every insurer is going to find their sweet spot in the marketplace.
One day a company like the Hartford may look like the cheapest workers’ compensation insurer based on some rating examples and the next day Travelers may be the next and the day after that it may be pie insurance.
How do you find the best workers’ comp insurance rate?
There are hundreds of factors that go into the final price you’re going to pay for workers’ compensation.
You can spend days maybe even weeks investigating which is the lowest cost and still end up paying more than you could doing it on your own.
So, my advice is to hire an expert insurance broker who can shop the marketplace for you and make a recommendation based on that expertise.
i just don’t think it makes sense wasting your time trying to figure out the rather archaic insurance industry when it comes to workers comp even clicking on a link to pie or next insurance means you become the insurance expert and you no longer have an advocate, if things ever go sideways on you.
And with insurance trust me things are going to go sideways especially, with workers’ comp.
Now I’ll carve out an exception here if you’re a startup company or a small low-risk firm and you want to do this on your own without any human intervention that’s fine!
On the other hand if you’re a larger company with several employees to several hundred employees you’re going to face unique risks, challenges, and issues, to me it doesn’t make sense to try to do workers compensation by yourself.
One wrong move and you end up costing yourself a lot of money, time and frustration.
VIDEO: Workers’ Compensation Insurance Cost
Bottom line on what workers’ compensation insurance costs.
Workers’ compensation insurance is not as simple as payroll times rate, as I’ve illustrated here there are several factors that go into the price development and what may be the best deal today may not be the best deal on your renewal or the year, after that there are so many moving parts that I believe that the more business is complex your the more of an expert you need when it comes to workers’ compensation insurance and business insurance in general.
How much does workers’ compensation insurance cost in New York?
In New York, the estimated employer rate for workers’ compensation is $1.44 per $100 of covered payroll.
How much does workers’ compensation insurance cost in California?
In 2021, the average premium in California is $1.56 per $100 of payroll.