What Does Workers Compensation Insurance Cost?

Workers compensation insurance costWorkers Compensation Insurance – How much does it cost?

Curious about what workers compensation insurance cost is for your business?

Looking online for the best workers’ compensation insurance quotes?

How are workers’ compensation premiums calculated and what can you do to reduce the cost of workers’ compensation insurance in your firm?

I’m going to answer these questions and a lot more – coming right up.

What is Workers Compensation Insurance?

Let’s start with what Workers Compensation Insurance is all about – 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 a portion of lost wages due to time away from work for recovery.

Workers Compensation Rates

The rates for workers comp are different from state to state and reflect the medical costs and wage benefits of each particular state.

The core premium for workers’ compensation is based on two factors

  1. the rate for each classification of workers on the policy which I’ll describe in a moment
  2. the amount of payroll in each of those classifications for the year.

in addition to these two factors, there are several other multipliers, factors, and elements that come into play, which i’ll also describe.

So, what is classification?

A workers’ compensation 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, as an example landscaping will mandate that the landscaping class code be used for all employees. There are general exceptions to this rule such as clerical employees that work strictly in the landscaper’s office.

When you look in the workers’ comp manual under landscaping it will indicate a rate which is then multiplied by the payroll of landscape workers per $100. Meaning that if there’s $100,000 of payroll you would take the rate times 1,000.

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.

You can see more about that here.

In New York, for example, each insurer may have several loss cost multipliers for each of their “Writing Companies” which provides them rating flexibility to charge a final rate that is commensurate with the risk.

And that brings us to a big point I want to make.


The cost of workers’ compensation insurance is greatly influenced by risk in two ways.

The first is the risk characteristics of what you do.

As I mentioned earlier if you’re a landscaping contractor your rates for landscaping will be higher than a law firm where most of the payroll is clerical.

Similarly, if you’re in the manufacturing business your workers’ comp rates will also be higher than an office type of exposure.

Companies in the construction, contracting, manufacturing, and distribution generally will have higher workers compensation rates than firms in office, professional services, financial services, retail, and similar low impact, low-risk types of industries.

It makes sense. The greater the risk of someone being injured, the higher the rate will be to cover the potential future claims for that classification.

Your Company’s Risk Level

Now the second form of risk that influences your rates is on your company’s level.

Let’s take as an 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 cost than a firm that doesn’t have a risk control game plan.

Usually, the difference between the two types of firms – those with a good plan and those without a plan are differentiated by their loss history, which is also a big determinant of what you will be charged for workers’ compensation insurance.

What other factors determine workers’ compensation insurance costs?

The size of your premium – the larger your premium, the greater a “size discount” is applied to your premium.

Loss History

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.

You can learn more about that here.

It is a rating factor applied in your premium development that can be a debit or a credit factor.

Have more claims than expected or average and a debit modifier will increase your premiums.

Have fewer claims and you’ll earn a credit.

Your State

The state you’re doing business in.

As I mentioned earlier, each state’s rates differ from one another and in a state like California, you can expect to pay more than in a state like Texas.

Your Insurer

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?

I’ll admit that this is not an easy question to answer because there is no consistency here, meaning that Company X is not always the most competitive over Company Y.

All the different rating factors I just ran through mean that every insurer will find their own “sweet spots” 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 best, and the day after that it may be PIE Insurance.

So, how do you find the best rate?

Now, to be transparent here, I am an insurance broker.

I represent a wide variety of insurers in the marketplace and know a lot about workers’ compensation so I want to give you my opinion and be honest and say I have a built-in bias here.

In my opinion, as I’ve illustrated above there are hundreds of factors that go into the final price you’ll 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 be 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.

Whether that’s me or some other expert is up to you, I just don’t think it makes sense to waste your time trying to figure out the rather archaic insurance industry when it comes to workers’ compensation.

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 with insurance, and trust me, things don’t always go smoothly when it comes to business insurance and workers comp.

Now, I’ll carve out an exception here.

If you’re a startup company or a small low-risk firm and want to do this on your own without human intervention, that’s fine.

I still don’t think it’s the best use of your time or resources, but I get it.

On the other hand, if you’re a larger company with several employees to hundreds of employees – you face unique risks, challenges, and issues.

To me, it DOESN’T MAKE SENSE to try and do workers’ compensation insurance yourself. One wrong move and you may end up costing yourself a lot of money, time, and frustration.

Here’s The 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 different factors that go into the price development, and what may be the best deal today may not be on the next renewal or the renewal after that.

There are so many moving parts that I believe that the more complex your business is, the more of an expert you need when it comes to workers’ compensation insurance and business insurance in general.

If you think that I am the type of expert you’d like to work with then give me a call or drop me an email.

However you reach me, I promise no hardcore selling in this conversation.

Let’s see if I’m a good fit for your business and how we may be able to help you with your workers’ compensation insurance situation.


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