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Average Cost of Workers’ Compensation Insurance

Workers’ compensation has been the primary form of business insurance in America for over a century. This insurance policy offers benefits to workers who are injured on the job, or who become sick due to their work. It also offers financial protection for the worker while they recuperate from their injury.

Workers comp insurance, which is a term that encompasses several different forms of insurance, is one of the most important business insurance packages you can buy; protecting the owner, manager, or employer from lawsuits resulting from negligence or employer wrongdoing. In this guide we discuss the average cost of workers’ comp insurance and how much you should expect to pay.

How Much Does Workers Compensation Insurance Cost?

While the price will vary depending on many complex factors, on average, a small business will usually pay somewhere around $200 a month, $2,500 annually, in workers’ comp insurance costs.  According to Carl Niedbala of Founder Shield, workers’ compensation insurance somewhat difficult to quote specifically because cost depends heavily on the state.

He adds, although classification codes are standardized throughout the US, workers’ compensation rates are established by each state. A way to understanding how much you will pay is to abide by this formula:

Premium = (Payroll/$100) x Class Code Rate x Experience Modification Rate

So for example, let’s say your company constructed fire places. According to the NCRB, that occupation has a class code rate of $4.34. So if you had $100,000 in payroll, you would expect to pay around $4,340 in annual premiums. However only an exact quote from an insurance carrier will grant you a final figure. You can see all class codes and rates on the NCRB website.

What’s the Average Cost of Workers Comp by State?

As we’ve mentioned above, workman’s comp requirements are dictated by state laws. Due to this location-based variation, the workers’ comp insurance cost for a business will depend heavily on the state they’re in. Almost every state requires businesses with employees to have workers comp insurance of some kind. The state regulatory agency then sets a workers’ comp rate. This amount is what the business will pay for every $100 they pay in payroll. Here are some example workers comp rates:

StateMinimum Workers Comp RateMaximum Workers Comp Rate
Alabama$0.15$22.80
Alaska$0.41$15.85
Arizona$0.20$20.61
Arkansas$0.13$10.96
California$0.40$33.57
Colorado$0.13$13.53
Connecticut$0.14$16.75
Delaware$0.22$14.71
Florida$0.26$19.40
Georgia$0.12$38.83
Hawaii$0.21$10.54
Idaho$0.28$18.04
Illinois$0.11$37.24
Indiana$0.11$7.69
Iowa$0.30$16.45
Kansas$0.11$12.49
Kentucky$0.10$18.15
Louisiana$0.17$15.93
Maine$0.25$14.00
Maryland$0.24$13.89
Massachusetts$0.07$9.77
Michigan$0.16$11.04
Minnesota$0.10$20.49
Mississippi$0.20$21.96
Missouri$0.15$19.64
Montana$0.37$22.84
Nebraska$0.13$7.40
Nevada$0.21$11.55
New Hampshire$0.16$15.87
New Jersey$0.27$19.72
New Mexico$0.24$27.61
New York$0.07$29.93
North Carolina$0.10$34.06
North DakotaN/AN/A
OhioN/AN/A
Oklahoma$0.20$19.49
Oregon$0.10$24.48
Pennsylvania$0.12$26.39
Rhode Island$0.15$13.57
South Carolina$0.18$36.19
South Dakota$0.16$23.29
Tennessee$0.11$21.47
Texas$0.07$13.29
Utah$0.90$20.66
Vermont$0.21$13.37
Virginia$0.08$14.03
WashingtonN/AN/A
West Virginia$0.12$5.47
Wisconsin$0.24$20.40
WyomingN/AN/A

What Influences the Cost of Workers Comp Insurance?

Your workers’ comp insurance cost will depend on several factors. One of which we’ve already talked about – your state. Other factors include:

  • Location– What state your business is in will affect the laws regarding how much insurance you need. The state also determines the workers’ comp rates. This will affect your business’ workers’ comp insurance cost.
  • The number of employees– How many employees you have will influence your workers’ comp insurance cost because the insurance rate is the cost for every $100 in payroll, which will be higher the more people you employ.
  • Nature of the job– Some jobs pose more risks than others. A roofer is at a higher risk of injury than an accountant, therefore their cost will be higher. Some job’s have a class code rate as high as $30!
  • History of workers comp claims– The more claims you’ve faced in the past, the more of a gamble you are for the insurance company, so they’ll want to mitigate that risk by raising the premium.
  • Your Total Payroll – The more people and the total cost of your payroll is one of the most determinative factors. The more people and the greater amount you need to cover requires a greater premium on your end as an employer.

Who Needs Workers Compensation Insurance?

Practically speaking, any company that has employees would be well served to have workers comp insurance. The workers’ comp insurance cost is far less than the cost of not having coverage. If you don’t have a workers’ comp insurance policy and someone gets hurt, you could be sued for the cost of the employee’s medical bills, lost wages, and other injury-related expenses.

Most people in that situation, no matter how much they like their employer, would have no choice but to sue to cover their costs. Workers comp protects both you and your employees from this situation.

What Does Workers’ Comp Cover?

Workers’ compensation insurance, also known as workers comp or workman’s comp, is a kind of insurance that covers employees for costs related to workplace injury. It also protects businesses from injury or illness related lawsuits. It can cover things like:

  • Medical costs– Medical bills related to workplace injury or illness.
  • Long-term care– If the employee’s injury or illness requires hospitalization or physical rehabilitation, they cover the cost.
  • Lost wages– They’ll pay a portion of the employee’s usual pay while you recover.
  • Workplace accommodations– If special equipment, like an ergonomic chair or keyboard, for example, is required for the employee to return to work, they’ll pay for it.  
  • Job training– If the injury makes the employee incapable of resuming their former job, they’ll pay to train them in a new skill.
  • Disability benefits– If the injury causes a disability that doesn’t allow the employee to return to work at all, either temporarily or permanently, they’ll pay out disability benefits.  
  • Death benefits– If the employee is killed on the job, the next of kin can receive compensation.

Who is Exempt from Workers Compensation Insurance?

While it’s best for all businesses to carry a workers’ comp policy, some businesses may be exempt from being legally required to have it. Also, some states have different standards for who is required to provide it and who isn’t. Some examples of businesses and/or workers who are exempt include:

  • Sole proprietors
  • Businesses with fewer than X employees
  • Employers of domestic workers
  • Farm labor employers
  • Executives of non-profits
  • Part-time childcare givers
  • Armature sports officials
  • Some entertainers
  • Independent & Casual workers

Examples of variation by state include:

  • Texas– Optional for all employers other than the government when employing construction workers
  • Ohio– All businesses with employees, no exemption, owners, partners, and sole proprietors don’t count as employees
  • Utah– All businesses with employees, with few exceptions. Owners, partners, and sole proprietors count as employees but may be excluded through the insurance company.

Bottom Line

While some businesses aren’t legally obligated to provide workers comp, it’s in the best interest of all employers and employees to do so regardless of legal requirements. Even sole proprietors benefit from having it for themselves. No one plans for a workplace accident to happen, but planning for the possibility could save your business, your livelihood, or even your life one day.

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