How is my Workers' Comp Insurance Premium Calculated?

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💡 Here’s the workers’ comp formula:
⇝ Annual Employee Payroll ÷ 100 x Your Rate = Your Premium ⇜

💁 Here’s how you figure it all out:

✔ Annual Employee Payroll
This is the amount you think you're going to pay your employees over the next year. If your business has different categories of employees or different types of work that employees do, you would break each category out separately.

✔ Your Rate
Insurance companies use a lot of factors to figure out the right rate for your business. The main factors are the total number of claims you've had in your business and the total amount of claims your industry has had in the past.

For example, roofers would be much more expensive than clerical workers because the likelihood of them getting hurt is much higher for people who are on a roof than people who are sitting at a computer desk.

✔ Real-Life Example
We're going to take a landscaping business for this example. Our business has four employees; two that work in an office and two that work as landscapers out on the field.

How to calculate workers comp cost per employee
Let's start with the office workers first. The two office employees have a combined projected payroll of $60,000 for this year. So we'll divide that by 100, which gives us $600. The rate in this state is 15 cents. So we’ll multiply our number by $0.15. Our estimated premium would be:

⇝ $60,000 (Annual Employee Payroll) ÷ 100 x $.15 (Your Rate) = $90 (Your Premium) ⇜

Now for the two more employees who work as landscapers. Let's run their numbers now. Their annual projected payroll for this year is $100,000. We’ll divide that by a hundred, and then we’ll multiply our number by the rate for landscapers in their state, which is $5. Our estimated premium would be:

⇝ $100,000 (Annual Employee Payroll) ÷ 100 x $5.00 (Your Rate) = $5,000 (Your Premium) ⇜

If you combine both numbers together, you have $5,090. Plus, there’s still a little bit of taxes and fees that get tacked on in the end. Those are very minor compared to the big premium number.

✔How do you figure out Your Rate?
Here's one more important component: the class code. The class code is a four digit number used by insurance people to categorize your business. So for example, a clerical business number would be 8810 and a landscaper would be 0042.

This is just an insider term to categorize exactly what your business does and then find the rate that's assigned to that number. So to find your rate, figure out your class code, and then find the rate that's assigned in your state. Remember, every state has a different rate and rates get updated frequently. Make sure you're looking up the rates that are active for the time period that you're looking at.

// Don’t want to do the math? Let us figure it out for you.
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⏱Timestamps

0:00 How is my workers' comp insurance premium calculated?
0:42 The workers’ comp formula
0:55 How is annual employee payroll calculated?
1:18 What is a workers’ comp insurance rate?
1:53 Example of how to do the calculations for workers’ comp premium
2:13 How to calculate workers comp cost per employee?
2:49 How to calculate workers’ comp premium for landscaper?
3:42 What is a class code?
4:07 How to find your workers’ comp insurance rate?
4:36 Where can I get a fast Workers’ Comp Insurance Quote?

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