To find the workers’ compensation cost per employee, start with each employee’s gross wages.
tips for calculating the payroll of work accident policies
- Use the annual gross earnings for each employee.
- If you cannot calculate the exact earnings for the year (for example, if a worker is paid by the hour), calculate the projected earnings. Your final workers’ compensation premium may be adjusted up or down at the end of the policy year to account for payroll overstatement or understatement.
- payroll may be rounded to the nearest $1,000. for example, a salesperson who is on track to earn $72,650 may be reported to earn $73,000.
- Only workers covered by the insurance policy should be included in the total payroll. check your state requirements to see if owners, partners, or family members are exempt from coverage.
- If you hire independent contractors, check state regulations to see if you could be liable for workers’ compensation coverage.
- What is the main product or service you sell? carpentry, commercial cleaning, HVAC repair, etc.
- What other tasks do your employees perform? common roles include sales, office, or delivery.
- Do you have any contractors or subcontractors that need coverage? If so, what do they do?
- A rate of $1.68 means a company with a $100,000 payroll would pay $1,680 a year in workers’ compensation premiums.
- a rate of $0.35 means a company with a $100,000 payroll would pay $350 a year in workers’ compensation premiums.
- number or types of claims filed.
- cost per claim paid.
- total health care costs for workers’ compensation claims.
- days of work (and therefore wages) lost by injured workers.
need more help? Read this post: How to Calculate Payroll to Find Your Workers Compensation Cost
2. find your classification code(s)
Your classification code is one of the most important details to get right if you want an accurate workers’ compensation quote.
Class codes are four-digit numbers assigned to companies based on industry. By grouping similar businesses together, data on workplace injuries and workers’ compensation claims can be collected. the rating agency then uses this data to assess the relative risk associated with that type of work and assign a rate based on recent losses (claims that have been filed and paid).
To determine your classification code, consider:
WorkCompOne’s online quoting tool makes it easy: Search keywords to find your classification code — or enter the four-digit number, if you know it.
To learn more about classification codes, read The Cost of Workers’ Compensation Insurance: How to Avoid Overpaying.
3. look up your workers comp rate
Although many rating codes are standardized in the United States, workers’ compensation premiums are based on the rate established by the state rating agency or bureau. each class code has its own workers’ compensation insurance rate.
Check with your state’s workers’ compensation regulatory agency to find out which agency sets workers’ compensation rates. Many US states use the National Council for Compensation Insurance (NCCI), while others use their own state rating office.
From there, you can search or contact the grading office to get the rate for your grading code.
A workers’ compensation rate is represented as the cost per $100 in payroll. for example:
this will give you an estimate; not an exact quote. In most states, insurance companies can deviate from the “recommended rates” published by the state rating agency. In some cases, the recommended rate may differ greatly from what an insurance company offers.
For the most accurate rate and best price, request a quote from multiple insurance companies. Or use an independent agency, which can shop around and present you with the most competitive quote.
How are workers’ compensation rates determined?
The state rating office sets the benchmark workers’ compensation insurance rate or cost by collecting and analyzing loss data – workers’ compensation claim data. this data can show patterns, such as changes in:
While rates are specific to each class code, rates throughout the state often increase and decrease at the same time and as a percentage. these rate adjustments are made to reflect changes in the performance of the state’s workers’ compensation system as a whole; for example, lower health care costs or fewer claims as a result of increased workplace safety.
So now that you’ve counted payroll, found class codes, and looked up workers’ compensation rates for your industry, how do you calculate the cost of workers per employee? Let’s get into that next.
4. calculate estimated workers compensation cost per employee
To find an estimate of the cost per employee, multiply the rate by the employee’s payroll.
For example: This Hawkins, Indiana plumbing business has two plumbers employed, earning approximately $50,000 per year. She also has a plumbing apprentice who earns $25,000 a year and a part-time office manager who handles administrative duties and earns $21,000 a year.
The owner enters these details into a spreadsheet to calculate the cost per employee. when added together, hawkins plumbing has a total annual payroll of $122,000:
Rates are expressed per $100 in payroll, so divide plumbers’ payroll and clerks’ payroll by $100, then multiply that number by the rate for each class code. the workers compensation rate for plumbers (ncci code: 5183) is $1.68, and the rate for clerks or clerks (ncci code: 8810) is $0.35.
Also note that Dustin Henderson’s part-time employment does not affect his coverage. your full annual salary must be included and coverage for all employees must be in effect for the entire year.
Based on these 2018 rates in Indiana, Hawkins Plumbing could expect to pay approximately $2,123 in annual workers’ compensation costs, or less than $200 per month.
Workers Compensation Payroll Calculation: A Real World Example
however, real small business payroll is rarely that simple. so here’s a more realistic example:
ken owns a motorcycle repair shop. has a full-time mechanic and a part-time hourly accountant. the full-time mechanic has a salary of $40,900. the part-time bookkeeper earns $22 per hour and works about 10 hours per month.
so how much workers compensation insurance does ken’s store really need?