Why there is no national workers' comp rate
If you came here for a number, this page does not have one. Workers' compensation rates are filed state by state, set against a classification of work, then adjusted for the individual employer. Three layers of variation sit between "workers' comp" and the figure on your invoice, and every one of them is specific to you.
California's Division of Workers' Compensation lists what goes into the figure: "A number of factors go into determining the annual premium your insurance carrier will charge. These include your industry classification, your company's past history of work-related injuries (known as your experience modification), your payroll, any special underwriting adjustments such as use of a certified health care organization, and any special group or dividend programs you may be eligible for" [1].
Classification, claim history, payroll, underwriting adjustments, group and dividend programs: none of those is a national constant. A figure that averaged across every state's filings, every classification and every employer's record would not describe a single real policy. This guide gives you the structure instead: what the three pieces of a premium are, who sets each one, and which document in your own files carries the number.
The three pieces of a premium
Strip the policy back and the arithmetic is straightforward.
premium ≈ (payroll ÷ 100) × rate × experience modification
Payroll is yours, though it has to be split by class code before it enters the formula. The rate is filed and quoted per unit of payroll. The experience modification scales the result against your own claim record.
Then the carrier's own arithmetic goes on top. California's list names "special underwriting adjustments" and "special group or dividend programs" as premium factors alongside classification, claim history and payroll [1]. Carriers also apply minimum premiums and schedule credits or debits under their filings. So the formula above is the skeleton, not the invoice, which is why this guide shows the shape with no values in it.
Class codes: the work decides, not the job title
A classification describes what a business does, not what a person is called. Two workers with the same title in different companies can fall in different classifications, and one company can carry several codes.
That is the normal case in construction. A contractor running framing crews, a roofing division and an office carries payroll in more than one classification, and the split has to be supported by records: timesheets, job assignments, a payroll system that tags hours to the right work.
Where it fails, it fails at the audit rather than at the quote. The carrier reviews your actual payroll at the end of the term, and payroll that cannot be substantiated in the class you assigned it to gets moved. A classification question is resolved by the rating organization, the carrier and the state's rules, not by what your competitor put on their application.
Washington shows the same structure from the state-fund side: its rate documents are published "by risk classification" and by classification code [4], so the classification is the row you look your rate up in.
This site names no class codes
No classification manual is among the sources for this guide, so no class code number or description appears on this page. Your codes are printed on your declarations page, and the authority for whether they are right is your carrier and your state's rating organization. Confirm with them, not with a code list found online.
Rate per $100 of payroll: how to read it
Workers' compensation rates are quoted against a payroll unit of $100 rather than as a flat annual charge. That is a convention: it lets one rate cover a one-person crew and a hundred-person one.
manual premium for one class = (that class's payroll ÷ 100) × that class's rate
So a rate is read as dollars of premium per $100 of payroll in that classification. Divide the payroll by 100, multiply by the rate, and repeat for each class code on the policy. The sum is where the rest of the calculation starts. Double the payroll in a class and you double the premium for that class, before your safety record enters the picture.
The rate itself moves through three documents, and only the last one is yours.
- A filed or advisory rate. The state's rating organization or state fund publishes rates against each classification. Washington's Department of Labor & Industries publishes base rates by risk classification, hourly rates by classification code, and experience rating parameters, year by year [4].
- The carrier's filed rate. In states where private carriers write the coverage, the carrier's own filing determines what it may charge.
- Your policy. The declarations page lists your classifications and the rate applied to each. That is the only rate that describes your policy, and it is the number to use when you cost an hour of labor.
Enter that figure, the one from your own declarations page, into the workers' compensation field of our labor burden calculator. Our guide to labor burden covers where it sits among the other employer costs, and our guide to general liability insurance for contractors covers the separate policy that is often audited on payroll as well.
The experience modification
The experience modification compares your own claim experience with the experience expected for a business of your size in your classifications. California's Division of Workers' Compensation names it in the premium factors as "your company's past history of work-related injuries (known as your experience modification)" [1].
The neutral point is 1.0: at that value the modification neither raises nor lowers the premium. Washington states the convention directly when it explains its own published figures: "The composite rate is the sum of the individual base rates assuming an experience factor of 1.0" [4]. Because the modification multiplies the premium, a factor above 1.0 raises the result and a factor below 1.0 lowers it.
Three things follow.
- You do not calculate your own mod. It is produced by the rating organization from reported claim and payroll data, on its own schedule. Your mod worksheet is the authority, and it is the document to ask for when a figure looks wrong.
- It looks backward, not forward. The modification reflects claims already reported, so a bad year keeps affecting premium after the crew has changed and the practice has changed.
- Claim data has to be right for the mod to be right. Reserves and classifications on old claims feed the calculation, so review the worksheet when it arrives rather than when the renewal is due.
This page publishes no sample modification value other than the neutral 1.0 [4], because a modification is a property of one employer's record and a number here would describe nobody.
The annual audit
Premium is estimated when the policy is written and trued up afterward. Estimated payroll goes in at binding; actual payroll comes out at audit, and the difference is billed or returned. Three areas drive the adjustment on a construction policy, and all three are mechanics rather than surprises.
Payroll classification. Payroll booked to a class the records do not support gets reassigned at audit, into a class with a different rate. It is the same exposure as the split above, arriving later.
Subcontractors without certificates. Where you cannot produce evidence that a subcontractor carried its own coverage, the audit may treat that spend as your payroll. The Texas Department of Insurance notes the commercial side of this directly: "Some contractors may require their subcontractors and independent contractors to have workers' compensation" [3]. Collect certificates as the work happens, not at audit time.
Owners, officers and family members. Whether these people are included in or excluded from coverage is a state-law question with its own forms and elections, and it changes the payroll the audit counts. Confirm with the agency and your carrier; do not assume the treatment from another state or another policy.
One more mechanic: you cannot fund this cost from wages. Texas puts it plainly: "You can't charge your employees for workers' compensation coverage" [3], with exceptions the same page flags for independent contractors and construction workers [3]. Check your own state's rule before anything is deducted.
Where this varies by state
Coverage itself, not only price, is a state question. Three states show how far apart the rules sit.
California: coverage from the first employee. "All California employers must provide workers' compensation benefits to their employees under California Labor Code Section 3700. If a business employs one or more employees, then it must satisfy the requirement of the law" [1]. The employer page repeats it without qualification: "California employers are required by law to have workers' compensation insurance, even if they have only one employee" [2]. On where to buy it, California allows a licensed insurance company or the State Compensation Insurance Fund, and employers "may also have the option to self-insure for workers' compensation" [1].
Texas: coverage is not required of most private employers. "Texas doesn't require most private employers to have workers' compensation" [3]. But the exception matters to contractors: "private employers who contract with government entities must provide workers' compensation coverage for the employees working on the project" [3]. An employer that goes without has obligations of its own: file an annual notice with the Division of Workers' Compensation, post notices in offices and workplaces, and tell new employees in writing that they are not covered [3]. And it loses "the legal protection against most lawsuits" [3]. Texas also requires buying only from carriers licensed by the Texas Department of Insurance [3].
Washington: a state fund publishing its own rates. Washington's Department of Labor & Industries publishes base rates by risk classification and by classification code, along with experience rating parameters, for each year [4]. Its published composite figures assume a neutral experience factor [4], so an individual employer's cost departs from them by that employer's own modification.
Those three illustrate the range; they are not a ranking. This site publishes no comparison of which state is cheaper and no table of rates by state. Whether your business must carry coverage, who may be excluded, and where you may buy it are questions for your state's agency and your carrier. Confirm with them, and read your own policy.
Frequently asked questions
How are workers comp rates calculated
A rate is applied to each $100 of payroll in a classification, and the result is adjusted by your experience modification and by your carrier's own factors, minimums and credits. The rate comes from a filing made for your state and classification; the modification comes from your own claim record. Your policy declarations page and your mod worksheet carry the numbers.
How are workers comp rates determined
By filing, not by negotiation at the counter. A state rating organization or state fund publishes figures against each risk classification, carriers file their own rates where private carriers write the coverage, and the classification of your operations decides which row applies to you. California's Division of Workers' Compensation lists industry classification, claim history, payroll and underwriting adjustments among the factors.
How much does workers comp cost
There is no single answer and this site publishes no figure. The cost is your payroll in each class code, times the rate filed for that class in your state, times your experience modification, plus whatever your carrier's filings add. Ask your carrier for a quote and read the declarations page; no national average describes a real policy.
How to calculate workers comp cost per employee
Take that employee's payroll in the classification the work falls in, divide by 100, multiply by the rate shown for that classification on your declarations page, then apply your experience modification. Carrier minimums and adjustments sit on top, so treat the result as the employee's share of the premium base rather than as a final figure.
Related
- Labor burden calculator: put the workers' compensation rate from your own declarations page alongside payroll taxes and benefits, and see the burdened hourly cost.