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.
Premiums are generally calculated based on the following factors:
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.
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.
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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.
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:
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:
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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:
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:
As for retroactive adjustments, you can:
Check out our Top 7 Ways to Control Workers' Comp Costs!
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:
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:
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.