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How much does Workers’ Compensation insurance cost for a small business?

Apr 15, 2021 · 5 minutes to read

As a small business owner, you may have many questions about Workers’ Compensation. However, the most pressing may be “How much will it cost for my business?”

Your small business is unique, and like most types of insurance, the amount you pay will depend on these factors. The cost of Workers’ Compensation insurance is determined by several factors, from where you work to how many claims you have filed in the past. Because no two businesses are the same, what you pay for a policy will likely be different from other businesses in your area and even within your industry.

How Workers’ Compensation costs are determined

There are four main factors that insurers consider when determining a business’ Workers’ Compensation policy premiums:

  1. Location
  2. Type of work
  3. Payroll
  4. Claims history

Let’s look at each factor in more detail.

workers compensation cost

1. Location

The location of your business, or where you will be working, plays a part in determining how much Workers’ Compensation insurance will cost for your small business.

Workers’ compensation laws vary from state to state. In most states, Workers’ Compensation coverage is mandatory to protect your employees in the event of a workplace injury or illness. The laws requiring this type of insurance also regulate workers’ comp costs, which in turn affect how much your policy premiums will be.

It’s important to note that you must meet the workers’ compensation requirements in each state where you do business. For example, say your main office is in Florida, and you do most of your business there. However, you sometimes complete jobs in Georgia. You would need Workers’ Compensation insurance that meets the legal requirements in both Florida and Georgia, and your policy premiums will reflect this.

2. Type of work

The type of work that you do—and the risk that comes with it—will help determine how much you’ll pay for Workers’ Compensation insurance.

Employees are more likely to be injured performing some jobs than others. For example, if you think about the risks faced by a construction worker compared to an administrative assistant, one is probably more likely to be injured on the job than the other. As a result, Workers’ Compensation coverage for the more dangerous occupation will likely cost more than for the job that carries less risk.

Insurers use workers’ compensation codes, also called class codes, to determine how risky a person’s job is. These codes are established and maintained by the National Council on Compensation Insurance (NCCI)—an independent organization that focuses on Workers’ Compensation insurance. A licensed insurance agent can help you find the code(s) that best describe the work your employees do, if you’re unsure.

3. Payroll

The cost of a Workers’ Compensation policy will partly depend on how many employees you are covering, or more specifically, the size of your payroll.

When you are applying for Workers’ Compensation insurance, you will typically be asked to estimate your payroll for the coming year. The insurer will use this to estimate your policy premiums. At the end of the year, an audit will compare your estimated payroll to your actual payroll at the end of the policy period. It will also verify the type of work your business does. The audit helps the insurer determine if your premium needs to be adjusted, based on whether the estimate you provided was higher or lower than your actual payroll.

It’s important to provide as accurate an estimate as possible when reporting payroll to your Workers’ Compensation insurer. Your coverage may need to be updated throughout the year as you hire new employees, give raises, hand out bonuses, or promote employees.

4. Claims history

Your claims history is also considered by insurers when calculating your Workers’ Compensation premiums.

A business’ claims history reflects how safe that workplace is compared to other similar businesses. If your business has a history of making workers’ comps claims, that is an indication to insurers that your workplace is dangerous in some way. As a result, your Workers’ Compensation policy will likely cost more than a similar business with a more positive claims history.

Insurers use an “experience modification factor” (or “experience mod”) to determine Workers’ Compensation premiums. An experience mod of 1.0 is considered average. Rates are based on whether a business’ experience mod is greater than 1.0 (which will increase premiums) or less than 1.0 (which will lower premiums).

If you are starting a new business, you will not have an experience mod. You may pay more for Workers’ Compensation insurance until you establish a claims history.

Save money on Workers’ Compensation insurance

Now that you understand how Workers’ Compensation insurance premiums are determined, it’s time to find the right policy for your business—and at the right price.

BizInsure has streamlined getting business insurances, like Workers’ Compensation, so you can go about running your small business. Our short application process provides you with multiple quotes in minutes. Compare and buy the policy you need and receive your proof of insurance instantly.

To find the right Workers’ Compensation policy for your small business, visit our website today.

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