A guide to workers' compensation insurance cost

Worker’s compensation insurance provides an essential safety net for employees who get hurt on the job. Whether it covers lost wages while employees recuperate or medical bills associated with the injury, workers’ compensation can be a critical lifeline. 

As an employer, ensuring you’ve purchased adequate coverage to protect your workers is one of your most important obligations. Almost every state requires that employers carry workers’ compensation insurance, and prospective employees may consider the extent of your coverage when deciding whether to accept an offer—particularly in risky professions.   

What is workers’ compensation insurance?

Colloquially known as “workers’ comp,” workers’ compensation is a type of state-mandated employer insurance coverage that protects employees injured in a workplace accident or who sustain a work-related illness. Benefits vary from state to state but generally include replacement income for lost wages, reimbursement for medical care costs, disability, and retraining.

Example: Adrian works as a floor manager in an industrial flour mill, responsible for monitoring worker activity and performing maintenance checks on machines. While inspecting a piece of equipment, Adrian slips, falls, and sustains a back injury. Adrian’s employer, General Flour, submits a workers’ compensation claim with supporting medical documentation to its insurer. The insurer pays Adrian’s medical bills and covers Adrian’s lost wages during the recovery period.   

What is the average cost of workers' compensation insurance?

In most states, employers of any size must purchase workers’ comp insurance on behalf of their employees. How much your business will pay for workers’ compensation insurance depends on multiple factors, including location, industry, and number of employees. For example, a three-person consulting firm in Orlando can expect to pay far less than a general contractor with 40 employees in New York.  

According to one industry study, the typical business can expect to pay an average premium of $45 a month, or $540 per year, for workers’ compensation coverage. 

Factors influencing workers' compensation insurance costs

When determining workers’ compensation premiums, insurers take into account the kinds of tasks your employees perform, where you operate, and your company’s overall track record for health and safety. 

Industry and type of business

Higher-risk professions generally mean heftier monthly premiums due to the increased likelihood of accident or injury. A tree trimmer who spends the day clipped into a safety harness will require more comprehensive coverage than a graphic designer working in an open-plan loft.

The National Council on Compensation Insurance (NCCI) assigns class codes to different types of work. Insurers then use these class codes to assess the risk associated with specific types of businesses, regardless of industry.

Location

Because each state sets its own requirements for workers’ compensation insurance, rates will vary based on employee location. Some states mandate a specific level of coverage, even for self-employed workers. Others require businesses to purchase policies from a state fund rather than allowing vendors to compete. 

Payroll size

Insurers take the size of your workplace into account when calculating your premiums, and costs tend to rise along with your headcount. 

Example: Acme Accounting LLC employs over 1,000 finance and administrative professionals across three offices. Smith and Partners Accounting consists of Alex Smith and two associates. Despite working in the same industry, Acme Accounting pays more for workers’ compensation than Smith and Partners because the odds of an accident or injury are much higher in a workforce of its size.

Some insurers also calculate your premiums per every $100 of payroll. In that case, even a small company with well-compensated employees might find itself paying higher premiums than a business with a larger workforce.

Example: DrawCorp employs ten full-time workers and reported a total payroll of $1 million last year. Drawing Partners LLP employs only four people, but payroll reached $5 million last year. Drawing Partners will pay more for workers’ compensation insurance. 

Claims history

Similar to automobile insurance for individuals, companies that previously filed workers’ comp claims can expect to pay higher premiums for coverage. Most insurers assign your business an experience modification factor when calculating your risk factor based on your prior history. 

4 Ways to reduce workers' compensation insurance costs

It’s important to remember that your state may mandate a certain level of coverage for a business of your size or in your industry. 

Within those limitations, however, you can still maximize the value of your policy and control workers’ comp costs by approaching workplace safety proactively and choosing a policy tailored to your needs.

• Train your workers. Preventing workplace injuries before they happen reduces the risk of high premiums due to a history of prior claims. Investing in a safe workplace by thoroughly training employees can bring significant savings.
• Assign workers’ comp codes correctly. Assigning employees to the wrong NCCI category can cause insurers to incorrectly calculate the risk level associated with their work, leading to unnecessarily high premiums.
• Choose pay-as-you-go. Rather than paying an annual based on your projected payroll, a pay-as-you-go policy distributes your premium costs across your monthly payroll, reducing your risk of overpaying.
• Work with a professional employer organization. A professional employer organization (PEO) can leverage its larger size to negotiate more favorable workers' compensation rates.

Ensure compliant workers' comp insurance through Rippling

For many businesses, the task of managing workers’ compensation, payroll, benefits administration, and other HR tasks can quickly become overwhelming. Rather than focusing on planning and strategy, teams get bogged down by compliance and paperwork. 

Working with a PEO—like Rippling—frees your human resources professionals from administrative tedium by taking on your most time-consuming HR functions. In the case of workers’ comp, Rippling simplifies every aspect of managing coverage – you won’t need to compare policies or negotiate workers’ comp rates, instead accessing workers’ compensation coverage through one of Rippling PEO’s insurance carrier partners and letting us help with claims administration. 

By prioritizing compliance, Rippling protects your business from penalties and other consequences of inadequate workers’ compensation coverage.

Frequently asked questions

What does workers’ compensation insurance cover?

Workers’ compensation coverage varies from state to state, but benefits typically include wage replacement, medical care coverage or reimbursement, occupational and rehabilitative therapy, and education and retraining costs.

How do you choose the best workers’ compensation insurance? 

To choose the best workers’ compensation insurance, consider the size of your business and the type of work your employees generally do. This will help you evaluate the appropriate level of coverage and compare policies.

You should also take into account state-specific requirements to ensure that you’ve purchased a policy in line with your business’ obligations. 

Where do you get workers’ compensation insurance?

While some states require businesses to purchase workers’ compensation insurance from a specific state fund, most allow your business to buy policies on the open market. In cases where private workers’ compensation insurance proves too expensive, you may have access to a competitive, state-funded option.

This blog is based on information available to Rippling as of July 29, 2024.

Disclaimer: Rippling and its affiliates do not provide tax, accounting, or legal advice. This material has been prepared for informational purposes only, and is not intended to provide or be relied on for tax, accounting, or legal advice. You should consult your own tax, accounting, and legal advisors before engaging in any related activities or transactions.