What Does Workers Compensation Cost?

The cost for workers compensation insurance is determined by the workers compensation board in each state. Even though base rates will slightly vary from state to state, the outlined calculations to figure the base rates are similar.

Every type of occupation is given a risk classification. The risk is determined by two factors: the frequency of work related injuries and the severity of injury. Severity is measured by both indemnity benefits (payments made directly to the injured employee to compensate for losses suffered as a result of an accident) and medical payments.

For example, a roofer is one of the highest occupational risk classifications, where clerical employees are one of the lowest risks. This will also hold true when it comes to the pricing.  The roofer will cost you much more than the clerical employee.

When calculating a base rate for workers’ compensation insurance, every classification is assigned a dollar amount that is determined by the state, which is then multiplied by 1 percent per $100 of the payroll for that employee. For instance, a clerical workers classification in California is roughly $1.25 per $100. If that employee’s paid $2000 per month, the workers’ compensation cost is roughly $25 per month.

There are additional credits offered to employers in certain states for drug free and/or safety programs. Some Carriers will also offer dividend plans that reward employers for safe workplaces, which lower or eliminates losses.

There is also a MOD (experience rating factor) that is based on the total cost of claims over a three year span for the Employer. MOD ratings for DC and 43 additional states are handled by the National Council on Compensation Insurance (NCCI.) The remaining 7 states their own independent rating plan. In a nutshell, the better your MOD rating the lower your premium will be. Here is an example: All companies MOD ratings will start at 1.0. If your company has an experience modifier of .90, you will only pay 90% of the annual premium. It works like an automatic 10% discount. On the other hand, if your rating is 1.10, you will pay an additional 10% of your annual premium. This is why workplace safety is so important.

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