Workers' Compensation Premium Calculator
Total gross wages for all employees
Based on job classification
Default is 1.00 (Safety rating)
State assessments or surcharges
Calculation Results
Base Premium:
$0.00
Modified Premium (after E-Mod):
$0.00
Total Estimated Premium:
$0.00
How to Calculate Workers' Comp Rates: A Comprehensive Guide
Understanding how your workers' compensation premium is calculated is essential for any business owner looking to manage overhead costs effectively. While many assume insurance pricing is a black box, the formula for workers' comp is actually standardized across most states.
The Workers' Comp Formula
The standard formula used by insurance carriers to determine your premium is:
(Payroll / 100) × Class Code Rate × Experience Modification Factor = Base Premium
Key Components Explained
- Annual Payroll: This includes gross wages, salaries, commissions, and bonuses paid to employees. Note that payroll is divided by 100 because the "Class Code Rate" is expressed as a cost per $100 of remuneration.
- Class Code Rate: Each job type is assigned a four-digit classification code based on its risk level. For example, a clerical office worker (Code 8810) has a much lower rate than a roofing contractor (Code 5551) because the risk of injury is significantly lower.
- Experience Modification Rating (E-Mod): Also known as the "mod factor," this is a multiplier based on your company's claims history compared to other businesses in your industry. A rating of 1.0 is neutral. If your E-Mod is 0.85, you receive a 15% discount. If it is 1.15, you pay a 15% surcharge.
- State Assessments and Fees: Most states add mandatory surcharges to fund state-run safety programs or uninsured employer funds. These are usually calculated as a percentage of the final premium.
Example Calculation
Imagine a small construction firm with the following data:
- Payroll: $250,000
- Class Code Rate: $4.50
- E-Mod: 0.90 (A 10% credit for a good safety record)
Step 1: $250,000 / 100 = 2,500 units of payroll.
Step 2: 2,500 × $4.50 = $11,250 (Base Premium).
Step 3: $11,250 × 0.90 = $10,125 (Modified Premium).
How to Lower Your Workers' Comp Rate
To reduce your premium, focus on these three areas:
- Improve Workplace Safety: Reducing the frequency and severity of claims will lower your E-Mod over a three-year rolling period.
- Verify Class Codes: Ensure your employees aren't misclassified into higher-risk categories than necessary.
- Audit Your Payroll: At the end of the year, ensure you aren't paying for exempt payments like certain overtime premiums or severance pay, which may be excluded from the calculation depending on the state.