Workers’ Compensation Insurance

Protecting your employees and your company

This article is for general informational purposes only and is not intended to replace competent professional advice. As always, consult with your preferred professional providers for your individual business requirements.

Workers’ Compensation Insurance is required to help protect both your company and your employees from the financial burdens of medical care from a job-related injury or illness. Without coverage, your business could be put into legal and financial jeopardy in the event of an on-the-job injury and coverage is therefore a requirement in all states for most companies with employees (consult with your insurance professional for any questions about exclusions). Insurance premiums are a necessary cost of doing business and must be factored in when analyzing your breakeven dollars – how much do you need to charge your customers to cover all your operational expenses.

Required and Necessary!

Workers’ Comp is regulated at the state level so you will need to be aware that there may be differences depending on where you do business. With that said, here is a brief description of what is involved in calculating a company’s Workers’ Comp costs.

The insurance company will want to know the classification of your business and your employees. If you are a general contractor building houses and employ carpenters and laborers, their rate will differ from your administrative staff. Using circular saws and nail guns carries greater risks of injury than a phone system and computer operation. Your insurance company will take these classifications into account when providing you a rate estimate.

The Rate Formula

The insurance rate is calculated by the general formula, as follows:

(Annual Employee payroll / 100) multiplied by the Workers’ Compensation Insurance Rate = Your estimated compensation cost.

Your company’s annual gross payroll is divided by 100 because the rate is per $100 of payroll. The rate is influenced by the number of employees in a classification as well as the company’s classification.  A general benchmark is that the higher the risk level the job presents to the employee, the higher the cost to insure through Workers’ Comp insurance policies.

Another thing to keep in mind as the leader of your company is your past insurance claims record. Therefore, having a good Human Resources program including things such as regular safety training meetings, employee handbook, safety program, and other employee focused programs will go a long way to both help keep your employees safe on the job and your costs lower. Again, please consult with a competent Human Resources professional for your specific business needs.

There are also rate variations by states, as shown in this example:
2018 Workers’ Comp policy cost for $100,000 in payroll comparison between Indiana and California:

References and Resources:

1. How to Calculate Workers’ Compensation Cost Per Employee
2. How Much Does Worker’ Compensation Insurance Cost?
3. Workers’ Compensation Class Codes:
4. State of Nevada Department of Business & Industry Workers’ Compensation