Workers Comp Calculator: How Much Does Workers Comp Insurance Cost?

Workers compensation insurance, workman’s comp, or whatever the kids are calling it these days is a common concern for business owners and operators. But do you know what workers comp insurance costs? Common is actually an understatement because if the business employs more than two people it’s required by law to have workers compensation insurance coverage. This doesn’t mean that all workers comp policies and premiums are created equal. There are many factors that contribute to workers compensation costs for your business specifically.

We’ll dig into those factors one-by-one but first, let’s take it from the top.  

What Is Workers Compensation Insurance?

Workers compensation insurance provides benefits to employees who are injured or become sick while performing the duties within the scope of their job responsibilities. These benefits cover medical expenses, lost wages, rehabilitation, and in the event of death on the job, death-related costs for the family. 

A workers comp insurance policy is purchased by the business, underwritten by the insurance company, and seeks to offer protection for both the employee and the business. Some states have publicly available funds to underwrite workers compensation insurance and prohibit private insurance companies from covering workers comp. 

Workers compensation policies and premiums will differ substantially from company to company depending on their industry, how long the company has been in business, any information about previous incidents, prior claims, and more. 

The Formula for Workers Comp Insurance Cost 

Before we dig into the nitty-gritty of the variables involved in calculating workers comp costs, we’ll first introduce a general formula for calculating workers comp premiums.  

What Are Workers Compensation Class Code Rates?

In the world of workers comp insurance, your entire job is explained by a four-digit number, known as a class code. 

Class codes have an accompanying description that provides context about the job and a corresponding class code rate. This class code rate is the amount per $100 of wages that should be paid in workers compensation insurance premiums, per employee.

For example, the class code “8832” represents a chiropractor, and has a class code rate of $0.14. These codes are classified and maintained by the National Council for Compensation Insurance (NCCI) or a state-sponsored classification. The NCCI is the insurance industry’s primary source for analyzing the risk profiles of various forms of employment in order to effectively underwrite workers compensation insurance. 

What Part Does Payroll Play in Workers Compensation? 

Your payroll is another aspect of your business that’s taken into consideration. For each specific class code, the employer pays a certain amount on every $100 of payroll. But what counts as payroll for the purposes of calculating your workers comp premium? Insurers will typically underwrite policies at premiums based on projected payroll. Once the fiscal year is over, the insurer will reassess the incurred payroll expenses and either credit your account (refund premiums) or debit your account (charge you more in premiums). 

Wages, overtime, bonuses, incentive plans, holiday and sick leave payments, will all be included in this payroll projection. However, tips, group insurance and pension plans, severance pay, and expense reimbursement will not be taken into account when calculating your workers comp premium.

What Is an Experience Modification Rate?

The Experience Modification Rate (EMR), also known as X-Mod or E-Mod, is what the insurance industry uses to compare your company’s workers compensation history against industry averages to predict the risk of future claims. 

EMRs typically fall in the range of 0.75–1.25. An EMR above 1.0 will increase workers compensation costs and an EMR below 1.0 decreases costs. New businesses typically start out at 1.0 for their first three years of business. 

Both severity and frequency of claims can contribute to an increase or decrease in EMR. Let’s say your employee, an office manager, fell in the office, requiring back surgery and five months of lost wages. Although this business does not frequently have workers compensation claims of this nature, the severity of this one claim would likely increase the EMR. 

Workers Compensation By State

There are three types of states regarding workers compensation: NCCI states, independent bureau states, and monopolistic states. NCCI states use the codes and rates provided by the national council. 

Independent bureau states like California, Minnesota, and Wisconsin establish their own separate rating bureau. For example, the WCIRB, or Workers Compensation Insurance Rating Bureau of California, is the largest single-state market for workers comp.  

Monopolistic states like Ohio, North Dakota, and Washington, are those that have established a state fund for underwriting workers compensation insurance and prohibit private insurance coverage.

Workers Compensation Calculator

As previously introduced, the formula for workers compensation insurance considers the class code rate, EMR, and the businesses payroll as follows: 

Unfortunately, this will only be a ballpark figure since we can’t know with certainty what states your business operates in, what EMR your business may be assigned, and how diverse your workforce’s class code rates could be. 

When considering how much workers compensation benefits an employee will receive, it depends heavily on the state in which the employee resides. 

Most often, benefits are calculated and paid based on the average weekly wage. This is calculated by multiplying the employee’s daily wage by the number of days worked in a full year. That number is then divided by 52 weeks to get the average weekly wage.

For example, an employee made $40,000 last year, working a total of 247 days, considering time off for vacation, sick leave, etc. This means the employee received $161.94 per day in gross income. Multiply this number by 260 or the number of days an employee would work in a full year (52 weeks x 5 days). Then multiply the wages per day ($161.94) by the number of days per year that constitutes full-time employment (260). 

This means that the employee would be entitled to benefits on $42,104.40 per year, or $809.70 per week. If the employee is totally disabled, they would typically receive 60% of this wage, or $485.82 per week. 

Finding Workers Compensation Insurance for Your Business

If you’re considering the best option for workers compensation insurance, simply create an account with Embroker to determine the best possible premium for your business. 

Our proprietary software can help calculate your risk profile compared to the industry average. Whether you’re a startup or an established business looking for the best rates, Embroker can help find the best workers compensation insurance quote for your business.