North Carolina Personal & Business Insurance
Durfey-Hoover-Bowden Insurance Protecting Your Way of Life Since 1937

How Much Does Workers Compensation Coverage Cost?

March 2014

This is a very common question. The Answer? It depends. There are a number of factors that go into the calculation, but there are two main parts driving your workers compensation premium. The main factors are the type of work you are doing and the amount of payroll you have.

1. Class Codes | Type of Work Determines Rate

Workers Compensation splits jobs into different class codes. Each class code is given a rate based on the risk of injury assocated with that line of work and the rates can vary dramatically. For example, the rate charged a roofer could be triple what is charged for a plumber. Your insurance agent should be able to guide you on assigning your employees to their correct classification.

Examples of Workers Compensation Classes and Sample Rates*:

Class Rate
  • Accountant
  • Auto Repair
  • Outside Salesperson
  • Plumber
  • Roofer

$0.20 per $100 in Payroll
$6.11 per $100 in Payroll
$0.91 per $100 in Payroll
$10.61 per $100 in Payroll
$38.76 per $100 in Payroll

*These rates were samples based on rates effective April 2014. Rates can vary greatly among different companies.

Getting the Classification Right Is Important

Correctly classifying some employees can be a bit tricky. Not every job falls into an obvious classification. Improper classification of duties can cost your company money.

  • Class With More Risk – The costs assocated with this are obvious. You will be charged a rate higher than the appropriate rate for your risk.
  • Class With Less Risk – At first glance, a mistake in this direction seems like it should save your company money. There are two big issues with this.
    • Audits: Your payroll will be subject to an annual audit. The auditor can check both your payroll and verify that the job class listed matches the actual work being done. If they find that you should be put in a more expensive class, you will receive a bill for what you should have paid for the prior year. This can be due all at once.
    • Experience Modification: Many workers compensation policies qualify for an "Experieince Mod." This number compares your losses to those of similar businesses. Every business starts with a "1" and the number adjusts up or down based on the number of losses you have versus what is expected for your industry. Your premium is then multipled by this number. A mod of .80 would result in a 20% decrease in premium and a mod of 1.30 would result in a 30% increase. If your business is misclassified, normal losses for your industry would cause a debit mod. Many insurance companies do not want to write businesses with a debit mod. It can also cost you work. Many companies do not want to work with another company that has a debit mod as they assume the business has unsafe practices.

2. Payroll

This is the other main factor in your workers compensation premium calculation. The rate for the class is multiplied by the payroll for the class to give the starting point for your premium. The rating for this is fairly linear. If your payroll doubles for a classification, your cost will be about double. There are a few items to note:

Sole Proprietors, Partners, Members of LLC, Corportate Officers

The owners of the business are the only ones that can choose not to purchase coverage for themselves. If they are not covered, their payroll is not included in the premium calculation. Owners that choose to cover themselves are subject to a minumum and a maximum payroll for the calculation.

Split Payroll

If your employee does more than one type of work, they may fall into more than one class. If the payroll is not able to be split between the work, you will be charged for the higher rated class for all the payroll.

How Does A New Business Pick Payroll Amounts?

To get a Workers Compensation Policy, you are going to need to estimate your payroll for the coming year. This can be a bit difficult for a new business. Since you do not have past years to go on, the number is your best guess. Try to be as realistic as possible with the number. When asked about payroll, some businsess owners tend to give the number they hope to achieve as a goal. This number is often a best case scenario and not the most likely. Basing your premium on a best case scenario can be burdensome for a new business.

Choose a realistic number and keep track of total payroll during the year. You can increase the payroll listed on your policy during the term or put the money aside for the audit. You can get a ballpark idea of how much this will be by using the rate times payroll calculation mentioned above. When your policy is audited, any additional premium due will be due immedately. It is important to prepare for this when your payroll is higher than anticipated.

Our posts are written in house based on questions we receive from our customers and current issues with NC Insurance. Follow us online to see more tips in the future.

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