Costs for workers’ compensation policies are very state-specific. Each state has a workers’ compensation board that determines how much you’ll pay in premiums and claims. Rates are set according to three factors:

1. Risk classification – Insurance companies apply hundreds of classification codes to different job types to indicate the potential for workplace injury. The higher the risk, the higher your premiums.

2. The state you operate from – You could pay higher premiums in areas prone to natural disasters, or that are near famous high-rise buildings, which could be terrorist targets. You could wind up paying multiple rates if you employ workers from different states.

3. Prior safety record – You’ll pay more if you’ve submitted a high number of prior claims.

Taking steps to increase safety and minimize worksite injury potential can help reduce your costs. Your workers’ compensation rates should also fall over time as the insurance company learns more about your company.

Risk is the biggest cost determinant. For example, covering a desk clerk will cost considerably less than protecting a truck driver who spends a lot of time on the road enduring harsh weather conditions.

Calculating costs
Pricing for workers’ compensation is expressed as a percentage of your total payroll. This typically ranges from $1.25 to $9 or more for every $100 of employee salary, depending on the risk level for each employee’s job. That rate will vary for each employee according to their risk classification and location.

Here are a few examples of how this pricing structure works:

• An office manager earns $600 per week or $31,200 annually. Since this is a low-risk occupation, NCCI sets the risk classification at 2%. The employer will pay $624 per year – or $12 per week – to purchase workers’ compensation coverage for one year for this worker.
• A crane operator makes $1,000 per week or $52,000 annually. NCCI determines the risk classification for this job to be 6.5%. The employer will pay $3,380 per year – or $65 per week – in workers’ compensation premiums.

One way to immediately cut these premiums is to consider a policy with a deductible. By paying $100 to $1,000 for each claim out of pocket, you can cut your premiums by up to 25%. This is typically a good option if you run a small to midsized business that’s considered low risk.

Note that insurance companies should only consider salary, commissions, and cash bonuses as the basis for workers’ compensation premiums. Overtime pay, gratuities, and other insurance payments shouldn’t be calculated. Check with your provider to ensure that they are only looking at qualified compensation.