Workers' compensation insurance is required in every state except Texas. While only a licensed insurance agent can calculate exactly what your annual premium will be, due to discounts that may vary between insurers, you can estimate your workers' compensation cost if you have a few key pieces of information. Your insurer will audit your business payroll every year or two to verify that you paid the proper amount of premiums.
Determine what classification codes apply to your employees. If you have an existing workers' compensation policy, these codes are listed on your declarations page. If you do not already own a policy, check with the National Council on Compensation Insurance (see Resources), or whatever agency your state uses for workers' comp class codes, to determine the appropriate codes.
Assign each of your employees to one of the classification codes. If someone fits into more than one code, speak with your insurance agent to determine the proper code for that employee.
Find the premium rate for each class code. Again, this information is listed on your policy's declarations page, or the renewal notice you receive at the end of the year. If you don't have an existing policy, call agents from different insurers to determine what they charge for each code. The rates represent a premium per $100 of payroll. For example, if your clerical staff is charged a rate of $1.08, you must pay $1.08 in premiums for every $100 they earn in payroll.
Calculate the total annual payroll for all employees in each code.
Divide each class code's annual payroll by 100. For example, if your clerical staff earns $45,000, your new number is now 450.
Multiply the new number by the class code's premium. Using this example, your clerical staff earning $45,000 with a $1.08 premium multiplier costs you $486 per year (450 X $1.08 = $486).
Add the annual premiums for all class codes. This is your estimated annual workers' compensation insurance cost.
Your business may have a state-assigned experience modifier, or x-mod. This is also listed on your declarations page. The x-mod either discounts or surcharges your annual premium. If you know your x-mod, multiply your annual premium by the x-mod number. For example, annual premium of $3,000 with an x-mod of .85 yields an adjusted premium of $2,550.
You cannot trick your insurer by reporting your payroll lower than it actually is. If you pay fewer premiums than you owe throughout the year, your insurer will charge you the difference after the annual or biannual payroll audit.
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