• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar

EduManias

  • E-Learning
  • Business
  • CBD
  • Education
  • Entretainment
  • Law
  • Game
    • World of Warcraft
    • Little Alchemy
    • Roblox
    • Fallout
    • Dust 2
    • Code Vein
  • Life Style
  • Kitchen Appliances
  • Tech
  • Sports
  • Contact Us
A Small Business Owner’s Guide To Calculating Premiums For Workers’ Compensation Insurance

A Small Business Owner’s Guide To Calculating Premiums For Workers’ Compensation Insurance

by Cherie McCord

Getting workers’ compensation insurance is a necessity for every business. It inspires confidence that your employees and business are protected when work-related accidents and injuries occur. This way, your business can continue to thrive because a third party is taking care of insurance, so you don’t have to.

Many state laws require employers to take worker’s compensation insurance the moment they hire one employee. However, knowing what premiums to pay for your insurance is important. The cost of insurance depends on several factors.

Here’s a simple guide to calculating premiums for your workers’ comp insurance.

Table of Contents

  • 1. Employee Classification
  • 2. Rate per Classification
  • 3. Your Payroll
  • 4. Your Experience Modification
  • Conclusion

1. Employee Classification

The first step in calculating premiums is your employee classification. Here, you consider the specific work they perform in your company. Businesses classify work according to its degree of risk. This way, an employee whose work is riskier than another in the same business gets higher premiums. From this classification, a specific rate is assigned for every $100 of payroll.

2. Rate per Classification

Another factor to consider is the rate assigned to each classification. However, in most states, the National Council on Compensation Insurance determines the classification rate. The NCCI has over 700 class codes for different types of jobs. For example, tree trimming and accounting have different codes, with each code assigned a specific rate depending on its degree of risk. The riskier the job type, the higher the class code rate. In our example, a tree trimmer is exposed to more risk than an accountant, meaning it will cost less to insure the latter than the former.

3. Your Payroll

Your payroll plays a significant part in calculating premiums as it is the basis for the insurance premium. For every $100 on your payroll, a specific rate is assigned based on the average weekly employee wages. This rate is, however, determined by the employee classification codes and may vary between states, meaning your location impacts your insurance premium.

4. Your Experience Modification

Your experience modifier (MOD) is a numeric presentation of your company’s claim experience. It is based on your company’s performance against other industry competitors with similar employee classification and shows the insurer the frequency with which you make workers’ compensation policy claims. The average experience modifier is set at 1.0. This means a business with less severe accidents or fewer injury occurrences has a MOD of less than 1.0. On the other hand, a company with riskier types of work will have a MOD of above 1.0. However, new businesses should start with a MOD of 1.0 since they have no claims history.

Given the above factors, the formula for calculating premiums is, therefore: payroll (per $100) X class code rate X experience modifier, where applicable + state taxes and fees, i.e., premium= { (payroll/100)* (MOD)* (class code rate)} + (state taxes and fees).

Conclusion

Businesses should spread their insurance premium payments over the year instead of paying as a lump sum to better manage their cash flow. If you choose this option, ensure you choose an insurance provider with a pay-as-you-go program to ensure your insurance premium is deducted every payroll period. Then follow this formula to calculate your premiums.

Filed Under: Business

You May Also Like

Understanding DB Sales and Toto DB
Understanding DB Sales and Toto DB: A Complete Guide
How Nudges Influence Consumer Choices
Behavioral Economics: How Nudges Influence Consumer Choices
Intel Forecast
Intel Forecast: What to Expect in 2025 and Beyond
Previous Post: « How to Calculate and Format Percentages in Excel
Next Post: What is the best food to feed betta fish, and how frequently should you do so? »

Primary Sidebar

How to Turn Feedback into Higher Marks

How to Turn Feedback into Higher Marks: Tips from Our Editing Team

The Ultimate Guide to Luxury Car Hire in Switzerland for Business Travelers

The Ultimate Guide to Luxury Car Hire in Switzerland for Business Travelers

At-home vs. professional facial

At-home vs. professional facial: Finding the perfect balance

Why Guided Assignment Help is the Study Hack That Builds Real Skills

Why Guided Assignment Help is the Study Hack That Builds Real Skills

The Ultimate Guide to Renting a Modern Cabin for Your Next Getaway

The Ultimate Guide to Renting a Modern Cabin for Your Next Getaway

Copyright © 2025 Edumanias