A comprehensive overview of workers' comp costs and how to calculate your estimate.
If you're a small business owner shopping for coverage, the question at the top of your list is probably a simple one: how much does workers' comp cost? The short answer is that workers' compensation rates are dependent on the state in which you run your business as well as your business type. According to the National Academy of Social Insurance, costs typically range from about $0.57 per $100 of covered payroll in Texas to $2.32 per $100 of covered payroll in Alaska. Your actual premium comes down to four factors that insurers weigh for every policy. Understanding them is the fastest way to know what you'll pay and where you can save.
Below, we break down what drives your workers' comp cost, how to estimate your premium per employee, and how small businesses can cut that cost by up to 30%.* When you're ready, you can get a quote in as little as three minutes.
Workers' compensation rates vary widely from state to state. Because workers' comp is regulated at the state level, where your business operates has a major impact on what you pay.
Keep in mind these are averages. Your specific rate depends on your industry, your payroll, and your claims history, which is why two businesses in the same state can pay very different premiums. Here's how insurers put those pieces together.
Small business owners have real levers to pull to reduce their workers' comp premiums:
Insurers weigh four main factors when calculating your workers' compensation premium and rate.
Workers' compensation is regulated at the state level, so your location directly affects your cost. Every state has its own workers' comp laws, and most states require businesses to carry coverage for employees injured on the job. Before you buy, research your state's requirements, or contact a workers’ comp agent near you.
The work your employees perform determines your classification code, or “class code.” These four-digit codes, defined by the National Council on Compensation Insurance (NCCI) as well as some state-specific entities, categorize jobs by their level of risk. Riskier work carries higher premiums: an aircraft mechanic, for example, has a far greater risk of on-the-job injury than an accountant, so the mechanic's class code carries a higher rate. Insurers use your class code to set a base rate, then adjust it based on whether your business runs a higher or lower risk than the industry average.
Your premium also scales with your annual payroll. Insurers ask for an estimate of your payroll for the coming year and use it to calculate your estimated premium. Reporting payroll accurately matters. Under- or over-estimating can affect your business's cash flow. Payroll generally includes wages, salaries, bonuses, and overtime, but typically excludes items like tips, employee savings plans, and discounts.
At the end of the policy period, a workers' comp audit compares your estimated payroll to your actual payroll and verifies the type of work performed, then adjusts your premium up or down accordingly. Reviewing your job descriptions and class codes with your insurer up front is the best way to avoid surprises at audit time.
Insurers factor in your claims history using an experience modification factor (also known as “experience mod” or “emod”), which by law must be reflected in your rate. An experience mod of 1.0 is the industry average; a mod above 1.0, (a debit mod) means your losses are greater than average, so you pay more, while a mod below 1.0 (a credit mod) means lower-than-average losses and a discounted premium.
New businesses don't yet have a claims history, so they may pay more until they establish a track record. Over time, promoting workplace safety and keeping claims low is one of the most effective ways to improve your experience mod and lower your rate.
Want a rough estimate before you get a quote? Insurers use variations of this basic formula:
(Class Code Rate) × (Payroll ÷ $100) × (Experience Mod) = Estimated Premium
Determine your employee's class code
Class codes are assigned by industry and job duty, set either by your state's workers' comp agency or by NCCI. Consider what your business does, the tasks each employee performs, and whether any contractors also need coverage. Not sure what your class code is? Check out our workers’ comp class code list.
Find the premium rate for that class code
You can ask insurers for their rate by class code. It's expressed in dollars and cents per $100 of payroll.
Rates vary between carriers, so it pays to compare quotes from several providers or work with an independent agent or broker who can shop the market for you.
Do the math on annual payroll
Take the employee's estimated annual payroll, divide it by 100, and multiply by the class code rate to find that employee's estimated cost.
Include full-time, part-time, temporary, and seasonal workers in your totals. Remember, this produces a rough estimate only.
At Pie Insurance, we specialize in workers' compensation for small businesses. Skip the complicated math and see your real rate.
It depends on the employee's class code and pay. Multiply their annual payroll (divided by 100) by the class code rate, then apply your experience mod. With average rates of roughly $0.57–$2.32 per $100 of payroll, costs vary significantly by state and occupation.
The core formula is: Class Code Rate × (Payroll ÷ $100) × Experience Mod = Premium. Insurers layer in your state's rules and your business's specific risk profile to reach a final number.
Your initial premium is based on estimated payroll. At the end of the policy year, an audit compares that estimate to your actual payroll and verified job classifications, then adjusts your premium up or down to match.
Work with a small-business specialist, classify your work accurately, report payroll correctly, lower your claims through workplace safety, and compare quotes.
Thanks for reading! This content is intended for educational purposes only, is not legal advice, and does not imply coverage under workers' comp or other insurance offered through Pie Insurance Services, Inc. Please consult an agent or attorney for any questions regarding applicability of insurance.
Workers’ Compensation policies underwritten by The Pie Insurance Company (NAIC 21857) and affiliates. Policies are sold and administered by Pie Insurance Services, Inc. (“Pie Insurance”), a licensed insurance producer (pieinsurance.com/legal). Individual rates, offerings, and savings may vary. Not available in all states and situations. Coverage subject to policy terms and conditions.
