You may have heard that workers’ compensation rates don’t vary from company to company–or that premiums are the same for employees who perform the same task within the same state.

But that’s just not true.

Workers’ compensation rates are not all the same. Insurance providers actually have some wiggle room when it comes to workers’ compensation rates. And that wiggle room can translate to big savings for your small business over the long run.

Here’s a look at the main factors that affect workers’ compensation premium rates—state, class code, payroll size, claims history, and insurance company. Read on to discover why it’s important to shop around for workers’ compensation insurance.

Workers’ compensation rates vary by state

Each state’s workers’ compensation entity sets the base rate for businesses in that state. These rates can vary widely. For example, at one point in 2020, New York had the highest median workers’ compensation rate at $3.08 while North Dakota had the lowest at $0.82.

Workers’ compensation rates vary by class code

Class codes, or classification codes, are used by insurance companies to estimate risk based on the type of work employees perform. They’re set by either the National Council on Compensation Insurance (NCCI) or by individual states. A clerical employee will usually carry a class code with lower risk, while a construction worker will be assigned a class code with higher risk. Typically, the riskier the work—the higher the premium.

Workers’ compensation rates vary by payroll size

The size of your payroll directly affects your workers’ compensation premium. Payroll includes wages, salaries, bonuses, overtime, commissions, reimbursements, and more. When you hire new workers or give raises, expect to see the amount you owe for workers’ compensation increase as well.

Workers’ compensation rates vary by claims history

Your claims history (as reflected by your experience modification factor) also impacts workers’ compensation premiums. The experience modification factor compares your expected workers’ compensation claims to your actual workers’ compensation claims. This allows the underwriter to compare your claims and the safety of your business to others across the industry and nation. A mod score under 1 can credit you for lower risk, while a mod score above 1 can come with additional premiums due to added risk.

Workers’ compensation rates vary by insurance company

Although workers’ compensation premiums are generally set within the above parameters, individual insurance companies do have some flexibility in pricing. Insurance agents and underwriters take all of the movable parts into account: mod factor, management experience, payroll size, class codes, safety, claims history, prior quotes, etc. Then, they customize a workers’ compensation insurance policy and rate for your business. Savvy small business owners keep this in mind and shop around to find the best insurance rates.

Thanks for reading! Please note that this content is intended for educational purposes only. As laws change regularly, you should refer to your state legislation and/or an advisor for specific legal counsel. If you’re a small business owner, learn more about workers’ compensation insurance or check your current rate in 3 minutes.

Are All Workers' Comp Rates the Same? | Workers' Comp 101