How much does workers’ compensation cost?

Workers’ compensation insurance premium is based on a number of factors for any employer:

  • Industry Classification Code for WC Base Rate (Define by the WCRIB)
  • You Payroll Amount (Policy Period)
  • Insurance carrier Underwriting Adjustments (Apply Surcharges/ Discounts/ Experience Modification)
  • Taxes and Fees Imposed

Workers’ compensation premium formula:

(Payroll Amount x WC Rate x (+/-) Carrier surcharges/discounts/ex mod + Taxes & Fees)

The formula above is a simplified version of how workers’ compensation insurance premium is calculated. Other factors are considered depending on the insurance carrier. Below are the following steps:

Payroll – What are the payroll for owners, caregivers, and clerical employees?

Workers’ Compensated Base Rate – Since the WCIRB (Workers’ Compensation Insurance Rating Bureau in California) already has assigned a specified class code for your particular industry, you simply need to identify the right classification code and Base Rate from the WCIRB. Although the WCIRB provides a Base Rate or sometimes called Pure Premium Rate, each insurance carrier applies its own experience modification (if available), rate surcharges, and rate discounts to the base rate to get the final actual Workers‘ Compensation Rate that you will be charged.

Insurance Carrier Surcharges/Discounts/Experience-Modification – Surcharges are usually added as a percentage by the insurance carrier to increase the workers’ compensation rate of a new business venture, insurance gap in coverage, lapsed in coverage, non-compliant audits or zip code. Discounts, on the, however, are a percentage given the insurance carrier to decrease the workers’ compensation rate. You may qualify for premium discounts, no claims discounts, multiple policy discounts or good history. An experience modification (ex-mod) is a rate that the WCIRB provides for either good or bad loss over a 3 ½ period.

Taxes and Fees – An insurance carrier would add state taxes and any applicable fees. This amount is usually a percentage of the premium.

What Is The Classification Code On My Employees For My Facility?

In California, the workers’ compensation governing body is the WCIRB (Workers Compensation Insurance Rating Insurance Bureau of California) which defines every classification code and its duties. The WCIRB maintains a database on every California’s employer workers’ compensation history written and applies the appropriate experience modification on each employer if applicable. All insurance carriers use the WCIRB database to verify an employer workers’ compensation history during underwriting.

Classification of workers’ compensation insurance is based upon the specific duties that your employees perform in the course of their employment with your company. These classifications are developed and assigned by the Workers’ Compensation Insurance Rating Bureau (WCIRB) in most cases. Your workers’ compensation insurance company must use the classification codes the WCIRB provides when rating your specific policy. Each classification is assigned a specific rate by the insurance company, which helps determine the overall premium for your policy. The WCIRB also generates the experience modification that must be applied to your policy. The experience modification is calculated from your losses, which your insurance company is required to submit to the WCIRB on an annual basis.

Usually, each individual workers’ compensation insurance policy has different rates and premium because of the facility’s location, payroll amount, policy history, claims history and experience modification.