April 5, 2021 3 min read

How Much Does Workers Compensation Insurance Cost?


Buying workers compensation insurance isn’t really a choice for most businesses since just about every business with two or more employees is required by state law to carry this coverage.

And while it’s pretty clear to most businesses that they need workers compensation, most have no idea how much they can expect to pay for it. There’s a fairly complicated set of processes and factors that go into calculating how much your business will have to pay in order to secure this coverage.

Let’s take a look at this process to understand how workers compensation premiums are calculated and what factors and characteristics of your business are most important to insurers.


Calculating Workers Comp Premiums

The formula that the insurers use to calculate how much you’ll have to pay for your workers comp looks like this:

Employee Classification Rate X Employer Payroll (Per $100) X Experience Mod Rate =   Your Workers Comp Premium

This might appear complicated at first, but it’s actually easy to understand once you understand the components of the formula and how they affect one another:

umbrella liability

Employee Classification Rate

Every employee class code is assigned a rate. This is a 4-digit code that signifies what type of work the employee is performing. This helps insurers determine the level of risk associated with the type of work being performed.



Your payroll is another aspect of your business that’s taken into consideration. For each specific class code, the employer pays a certain amount on every $100 of payroll. But what counts as payroll for the purposes of calculating your workers comp premium? Wages, overtime, bonuses, incentive plans, holiday and sick leave payments, are all included in payroll. However, tips, group insurance and pension plans, severance pay, and expense reimbursement will not be taken into account when calculating your workers comp premium.

payroll illustration

Experience Mod Rate

The Experience Mod Rate (EMR), also called “Mod” for short, is another factor used to determine your premium. This number shows how your business compares to other businesses in your industry with similar employee classifications. The factors that determine your EMR are the age of your business and the severity and frequency of your previous claims.

If you rank favorably amongst similar businesses, your value will be less than that 1.0 (the starting point for ratings) and you’ll pay lower premiums. The higher your mod rate, the higher your premium. Once the classification rate and payroll are determined, the EMR is then applied to the premium calculated. The increments in which your EMR is modified are 0,10 and each increment entails a 10% increase or decrease in the cost of your premium. Use our workers comp calculator to figure out your premiums.

Now that you have a better understanding of how much your workers comp will cost and how insurance carriers calculate premiums, you may be wondering how to secure coverage and what to do next. The best thing to do is talk to one of our expert brokers who can advise you on the next steps to take. Along with finding you the right coverage at the best price, they can also help you explore past claims and correct any historical errors on your XMod, which could lead to significant savings.

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