The premium charged for workers’ compensation insurance is based on rates set by the National Council on Compensation Insurance (NCCI). Each year, the NCCI collects data from all industries in the country to determine the likelihood of injury and the resultant medical costs. Insurance actuaries then determine the work comp rate per industry classification. Each state is evaluated based on that state’s unique socioeconomic factors. While rates may vary from state to state, the basic process of determining a base rate is similar.
The cost of workers’ compensation insurance is based upon 3 primary factors:
- Gross payroll for all employees, including salaries and wages, bonuses, commissions, and draws against commissions, plus holiday, vacation and sick pay
- Type of work performed by employees
- Location of the business
- Claims experience of the company
Premiums for workers’ compensation insurance are calculated by the following formula:
Payroll (per $100) X Classification Rate X Experience Modifier = Premium
Any employee who works for an employer regardless of classification is considered an employee and is covered under the workers’ compensation policy. This includes full-time employees, part-time employees, independent contractors and contracted laborers. Sole proprietors and general partners are automatically excluded from coverage unless they request the coverage in writing. Corporate officers are automatically covered by the policy unless they ask to be excluded.
The easiest way to calculate the premium cost for workers’ compensation is to multiply the annual payroll by the rate classification. Premium discounts may also be available to employers. Two of the more common discounts include a 2% discount for a workplace safety program and a 5% discount for a drug free workplace program. Each of these programs must be renewed every year in order to receive the discount. Some insurance companies offer highly attractive dividend programs to attract businesses they prefer. Premium discounts are also available for companies with large premiums.
If you are interested in learning more about workers’ compensation, or to receive a no obligation quote, please contact us at 1-800-272-6055.