How Much Should Workers’ Comp Insurance Cost?

Workers' compensation insurance protects employers from liability in case an employee is injured or becomes ill as a result of work-related activities. It covers medical expenses, lost wages, and legal costs associated with these injuries or illnesses, and it's a critical part of any business's risk management plan. But how much should your business be paying for coverage?

While there's no universal amount for every business, small business owners can expect to pay $30 to $60 per month (or even more), according to Insureon. However, medium to large employers may pay significantly more — up to several thousand dollars for a comprehensive policy.

But what factors actually go into determining how much a workers' comp policy will cost? This blog unpacks the basics of how premiums are generally calculated before delving into the specific factors affecting those premiums.

The Basics - How are Workers' Comp Insurance Premiums Calculated?

Premiums are generally calculated based on the following factors:

Employee Classification Code

Your business must assign each employee a specific classification code, which is based on the type of work they do. These codes are provided by the insurance companies, and they determine how much your premiums will be. Essentially, low-risk jobs like office clerks or administrative assistants are assigned lower codes than higher-risk jobs like roofers, plumbers, and electricians.

Payroll Amounts

Different payroll amounts attract specific premiums. These rates are usually applied per $100 of payroll, with the national average being $1.19 per $100 of payroll, according to data from the National Academy of Social Insurance. Therefore, if your business has a payroll of $20,000, your workers' compensation insurance cost would be around $238 per month.

Learn more about how Alloy can help with your payroll administration.

Experience Modification Rating (EMR)

Your business's experience modification rating will also affect the cost of your policy. This is an important factor that reflects your company's past claims performance — if you've had a high number of claims, your EMR will be higher, and you'll pay more for coverage.

An In-Depth Review - What Other Factors Affect My Premium?

Aside from the basics, there are several other factors that can affect how much you incur in workers' comp insurance cost. Here's a closer look at how you can manage these factors (where possible) to minimize premium payouts:

Industry

No two industries carry the same risk of employee injuries and illnesses, so it stands to reason that they won't be subject to the same premiums. Industries such as construction, manufacturing, and transportation tend to pay more for workers' compensation insurance than those considered low-risk (e.g., administrative offices).

So, what can you do if you're in a risky industry to minimize costs? Below are a few practical tips:

Ensure your business is compliant with safety regulations like OSHA guidelines.
Invest in safety equipment that can reduce the likelihood of accidents occurring, e.g., safety harnesses for working at heights.
Implement safety protocols and procedures to reduce the risk of workplace injuries.
Provide employee training to ensure they understand the dangers of their work environment and how to prevent accidents.

Learn more about the industries we serve.

Location

Different states have varying laws and regulations governing workers' comp insurance, so the cost of coverage can vary widely from one state to another. For example, some states, like California, have higher benefits and maximum amounts for medical bills, while others are more lenient.

But regardless of your state, you can still minimize premium costs by implementing the following best practices:

Ensure your business is up-to-date with all relevant safety regulations.
Train employees on the proper usage of safety equipment and safe work practices.
Take measures to reduce the risk of accidents in the workplace, such as providing fall protection and ergonomic furniture.
Invest in a good return-to-work program that helps injured employees return to work quickly and safely.

Deductibles/Retroactive Adjustments

Deductibles and retroactive adjustments — also known as retrospective rating — are other factors that can impact your workers' comp insurance cost. Essentially, a deductible is the amount of money you'll pay out-of-pocket before your policy kicks in, while a retroactive adjustment is applied to your premiums based on the number and severity of your past claims.

When it comes to deductibles, you can:

Minimize your costs by opting for a higher deductible amount — as long as you're confident that you can cover those costs if an accident occurs.

As for retroactive adjustments, you can:

Keep your premiums low by investing in safety equipment and training and offering a return-to-work program for injured employees.

Check out our Top 7 Ways to Control Workers' Comp Costs!

Safety Practices

In addition to the above, your business's safety practices can also have a significant impact on your workers' comp insurance cost. For example, if you invest in safety equipment and offer employee training, you may be eligible for discounts.

Below are a few more safety practices you can implement to reduce your insurance costs:

Take proactive steps to minimize workplace risks — such as providing fall protection and proper ventilation.
Provide regular safety inspections to identify any potential hazards and remediate them quickly.
Invest in safety technology, such as sensors that monitor machinery for unsafe conditions.
Ensure timely reporting of any accidents or injuries so you can take the necessary steps to prevent further incidents from occurring.

Proactive Claims Management

Proactive claims management is also key to keeping your workers' comp insurance costs down. It's important to have a system in place that allows you to quickly and accurately document any accidents or injuries that occur, as well as any measures taken to prevent them from happening again in the future. This will help you stay organized and keep your premiums low.

Here's how to implement an effective proactive claims management program:

Set up a system to track all incidents, such as a secure online platform or hard-copy filing system.
Communicate with employees and insurers promptly after an accident occurs.
Evaluate the cause of each incident to help identify the root causes of problems and develop solutions.
Implement corrective actions to prevent similar accidents from occurring in the future.
Assemble a claims management team responsible for handling claims and assessing their progress.

Get Your Free Claims Assessment Today!

Managing your workers' compensation risk properly can save your business thousands of dollars annually and contribute to having a safe workplace, which can have an impact on many other parts of your business and the success of your enterprise. Conversely, poor practices can hurt your business and put you in a financial hole that can take years and many resources to repair.

If you're looking for help managing your workers' comp claims or want to learn more about how Alloy Employer Services can help you save money on insurance costs, contact us today for a free claims assessment! We'll help you develop an effective plan to reduce your workers' comp costs and maximize the safety of your workplace.