Workers compensation insurance pays for medical care, lost wages and other benefits should an employee get hurt or sick on the job. It is an important insurance coverage and one that is required of businesses in most states.
Employers pay for workers comp insurance, although costs can essentially be passed on to employees via lower wages.
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How Much Is Workers Comp Insurance?
Workers compensation insurance costs an average of $45 per month, according to Insureon. That’s $542 per year.
Slightly less than a quarter (23%) of small business owners pay less than $30 for workers compensation insurance, 40% pay between $30 and $60 per month, and 37% pay more than $60 per month, according to Insureon.
Workers Compensation Insurance Costs by State
The national average cost of workers compensation insurance is $1.19 per $100 of payroll, according to the National Academy of Social Insurance.
Factors in Workers Comp Insurance Rates
Key factors affecting workers compensation insurance premiums are your industry, payroll and claims history. Your state’s worker compensation laws will impact your workers compensation premium as well.
- Industry: When it comes to workers comp, businesses like construction are riskier for claims and thus have higher premiums.
- Payroll: A company’s annual payroll is used to calculate its annual workers compensation insurance cost. Because of this, you’ll need to know your annual payroll figures when shopping for workers compensation insurance.
- Claims history: If your business has had workers compensation claims in the past, you’ll see an increase in your workers compensation costs. Both the number of claims and the seriousness of the claims will be considered when determining the workers comp rate for your business.
- State laws: The location of your company has an impact on premiums. Each state has its own state laws regarding workers compensation and these laws impact insurance premiums.
Get Workers’ Comp Quotes For Your Business
Employee Job Classifications
Many states set workers compensation rates based on guidance from the National Council on Compensation Insurance (NCCI).
NCCI maintains more than 700 class codes for workers compensation. These codes describe each job type’s level of risk and help determine how much a business will pay for workers compensation insurance.
Looking for a NCCI code list? The complete NCCI code list is found in the Scopes Manual. You can purchase a copy of the Scopes Manual by visiting the NCCI online catalog.
What Does Workers Compensation Insurance Cover?
Workers compensation insurance typically covers:
- The employee’s medical expenses such as hospital stays, X-rays and surgeries
- Physical therapy when on-going treatment is needed
- Lost wages when an employee needs to take time away from the job to recover from a work-related injury or a work-related illness
- Funeral costs if an employee dies from a work-related injury or illness
Where Can I Get Workers Compensation Insurance?
Your state’s laws determine where you can buy workers comp insurance. There are two main choices: private insurance companies and state-funded workers compensation insurance programs.
Some states give businesses the choice of buying workers comp insurance from private insurance companies or from a state-funded program. Other states shut out all competition and only offer workers compensation insurance through state-funded programs.
How Are Workers Compensation Premiums Calculated?
Workers compensation premiums are calculated based on factors such as your industry type, number of employees, payroll and your business’s claims history.
Each factor becomes a number that is plugged into a formula to determine your workers compensation premiums:
- Classification rate is the dollar amount assigned to a type or class of workers, such as an accountant or electrician. Higher rates are assigned to more risky types of work.
- Experience modification factor is based on your workers comp claims history. Businesses with a track record of fewer (or zero) workers comp claims will get a lower score, which means better rates. New companies will be assigned an experience modification factor based on the industry average.
Common Workers Compensation Claims
Overexertion is the most common cause of work-related injuries according to a Travelers Insurance analysis of 1.2 million workers comp claims.
More than a third (34%) of workplace injuries happen to employees during their first year on the job and result in almost 7 million missed workdays a year.
Five Most Common Workplace Injuries or Illnesses
How to Reduce Workers Comp Insurance Costs
Workers comp is a crucial component of a small business insurance plan. Here are tips for saving money on workers compensation insurance.
Employee training. Teaching your employees how to perform simple tasks on the job can help to prevent accidents and injuries. For example, you want your employees to be able to identify hazards and report them.
Property upkeep. Providing your employees with a safe and healthy workplace can help reduce accidents, injuries and illnesses. Routine building inspections are important and you’ll want to keep the building air ducts clean. Make sure the building is up-to-date with building maintenance.
Safety rules. Educating your employees on safety within the workplace can help prevent slips and falls and other accidents. Devote some time to reviewing safety rules with employees.
Proper equipment. Give employees the most up-to-date personal protective equipment that they need to stay safe on the job.
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