Workers’ compensation insurance is vital for protecting employees from occupational hazards. And a workers’ compensation insurance policy isn’t just for typically dangerous industries, like construction—even seemingly safe jobs, such as IT, require it.
In most of the United States, paying workers’ comp for your employees is legally required, so employers should factor it into their budget, just like payroll and other expenses.
But how much does workers’ comp insurance cost? And what are workers’ compensation insurance requirements by state?
Workers’ compensation insurance costs vary depending on the industry you’re in. This article will break down costs by industry and answer your questions about workers’ comp.
What is workers’ compensation insurance?
Workers’ compensation insurance is a policy that provides medical, wage, death, and other coverage to employees if they become ill or injured on the job. It protects employers and employees in several ways.
- Employees: Workers’ comp can cover medical costs, loss of wages, and funeral expenses.
- Employers: Workers who get injured or sick at work might have cause to sue their employers. Workers’ compensation provides liability coverage for these cases.
There are several types of workers’ comp coverage available, covering a variety of employee needs:
- Healthcare costs: Medical bills can get expensive quickly. Insurance will cover workers’ comp claims resulting from workplace injuries or illness-related medical expenses.
- Disability compensation: Becoming disabled incurs considerable expenses, not to mention heartache. Workers’ comp can assist with the former to help ease the latter.
- Death compensation: Passing away on the job is an unfortunate reality. According to the Bureau of Labor Statistics, 5,486 workers suffered fatal workplace injuries in the U.S. in 2022. Insurance helps cover funeral expenses.
- Long-term treatment: Facing long-term treatment, such as rehabilitation and physical therapy, can become expensive. Workers’ comp coverage will pay for these treatments.
- Lost wages: Time away from work means lost income. Workers’ compensation will pay a portion of the employee’s wages until they can return to work.
Insurance helps safeguard team members from financial hardship if something happens to them at work. All states except Texas legally require employers to obtain workers’ comp insurance for all employees.
Factors that affect workers’ compensation rates
According to the most recent statistics from the National Academy of Social Insurance, the national average cost of workers’ compensation coverage is $0.95 per $100 in payroll. However, the exact cost of workers’ compensation insurance depends on numerous factors. These include the following:
- Payroll size: A company’s annual payroll is partly used to calculate its annual workers’ compensation premiums. We recommend having this payroll information on hand when shopping for insurance coverage.
- Industry and job type: Workplace safety is a significant factor when calculating insurance premiums. Some industries and job types are simply riskier. Think of sales reps who drive daily or construction workers who operate heavy machinery. The riskier the job, the higher the premiums.
- Claims history: As with any insurance company, the more you claim, the higher your premiums will be. Similarly, the seriousness of your previous workers’ compensation claims will also factor in.
- State requirements: Every state has unique laws governing workers’ comp insurance. Your business’s location will impact your premiums.
Average workers’ compensation insurance costs
According to Insureon, an independent online agency for small business insurance, the average workers’ comp insurance premium for its customers is $45 per employee per month or $542 per annum.
Insureon calculated this figure based on the median premium of policies their customers bought from various insurers. However, this doesn’t apply equally across industries or business sizes.
Here’s what you can expect to pay depending on the type of work you’re involved in, according to the Insureon report.
Construction
Construction and contracting incur the highest workers’ comp insurance rates of any industry, averaging $254 per month. Roughly 20% of workplace deaths occur in this industry, so workers’ compensation rates tend to be higher.
Retail
Retail might seem like a low-risk industry, but its workers’ compensation rates are relatively high compared to many other sectors—more than those in IT and tech, building design, real estate, or sports and fitness.
The general cost for employers is around $83 in insurance per month.
IT/technology
IT and technology are some of the lowest-risk industries, likely because workers remain seated most of the time, which doesn’t present many opportunities for injury.
The monthly premium is roughly $34.
Healthcare
Healthcare professionals sit in the middle of the pack, with employers paying around $54 per month.
Cleaning services
Cleaning services is one of the riskier industries. This might be because cleaners often work in different locations with varying safety levels. Window cleaners for skyscrapers certainly endure significant safety risks.
The premium is $147 per month.
Media and advertising
Only slightly higher than IT/technology, media and advertising averages just $42 monthly.
Real estate
Real estate professionals also face minimal risk on the job. The average workers’ compensation insurance cost is $47 per month.
However, real estate agents need other types of insurance, such as professional liability insurance (also known as errors and omissions insurance), before obtaining a license.
Professional services
Coverage rates for professional services (e.g., accountants, bookkeepers, legal services, and logistics) average $45 per month.
How to calculate workers’ compensation insurance cost
Here’s how you can calculate your workers’ comp insurance premiums:
1. Determine the classification rate
The National Council on Compensation Insurance has a rates guide to help employers in various states determine how much insurance they need in their workers’ comp policy.
NCCI maintains over 700 class codes for workers’ comp, which describe each job type’s risk level. If you want to find out what applies to your employees, you can find the codes in the Scopes Manual, which you can buy on the NCCI website.
2. Find your experience modification factor
Also known as the experience rating, experience modification rate, E-mod, or EMR, the experience modification factor is an employer’s safety score. This affects your workers’ comp policy premium.
It’s a numerical representation of your claims history—the ratio of your claims compared to the expected costs of similarly sized companies in the same industry. The NCCI—or your state’s workers’ compensation bureau—calculates this figure for you.
3. Use the formula
Once you have these figures, you can use the following formula to work out your workers’ compensation insurance rate:
Classification rate x experience modification factor x (payroll / 100) = Workers’ compensation premium
Ways to reduce workers’ compensation insurance costs
Despite set rates and guidelines, you can reduce your workers’ compensation premiums. Here’s how to go about it:
- Implement workplace safety programs: Promote a safe workplace by hiring a risk manager, setting up a safety committee, and writing an accident prevention document.
- Choose pay-as-you-go insurance options: A pay-as-you-go workers’ compensation policy lets you pay your workers’ comp premium with your payroll so you don’t end up overpaying or underpaying during the year based on estimated payroll.
- Bundle policies with other business insurance: Combining workers’ comp coverage with other types of commercial insurance can save money. You might get a reduced rate when purchasing multiple types of insurance from one insurance provider.
- Improve claims history with employee training programs: Prioritizing workplace safety can minimize workplace injuries and illnesses, reducing your premiums. Regular workplace safety training will help your employees understand the dangers associated with their jobs and hopefully lead to fewer incidents.
Make workers’ compensation easier with Oyster
Estimating workers’ compensation insurance premiums can be complex, but staying compliant and protecting your employees shouldn’t be a burden. You can prioritize workplace safety to reduce costs and keep your team secure.
With Oyster, you have a strategic partner to help you navigate the intricacies of workers’ compensation insurance across borders, ensuring your global workforce is covered and compliant. Our global employment platform helps you take care of your team from anywhere in the world.
About Oyster
Oyster is a global employment platform designed to enable visionary HR leaders to find, engage, pay, manage, develop, and take care of a thriving distributed workforce. Oyster lets growing companies give valued international team members the experience they deserve, without the usual headaches and expense.
Oyster enables hiring anywhere in the world—with reliable, compliant payroll, and great local benefits and perks.
