Who Pays The Most, And Who Pays The Least?
Do you know how much you can expect to pay for workers’ compensation insurance? Workers’ comp is regulated at the state level. Each state has its own laws determining coverage requirements, rates and claim benefits.
Wonder how your state stacks up? In this post, we’ll be taking a look at some of the states with the highest – and lowest – workers’ compensation costs. We’ll also discuss the factors that influence these costs, and why some states may have higher prices than others.
Understanding How Workers’ Comp Rates Are Calculated
Workers’ compensation is calculated using what’s called a “Premium Index Rate” or workers’ compensation rate. This is typically expressed as the dollar amount that your business will pay per $100 in payroll for workers’ compensation coverage.
For example, if your workers’ compensation insurance rate is $1.20, and you have $100,000 in total payroll, that means you’d pay around $1,200 a year for workers’ compensation coverage. And if your rate is $2.50 with $100,000 in payroll, you’d pay $2,500 for worker’s compensation coverage.
As of 2020, the median premium index rate across all U.S. states was $1.44. With that in mind, let’s get into the details, and explore which states tend to have the highest (and lowest) workers’ compensation insurance costs.
Top 5 States with the Highest Workers’ Compensation Costs
As of 2020, available data shows that the following 5 states have the highest workers’ compensation costs:
- New Jersey: $2.52 – The Garden State comes in at #1, with a $2.52 index rate that’s 175% higher than the median. It was ranked at #3 in 2018.
- New York: $2.23 – New York comes in just below its neighboring state at #2, with an index rate of $2.23. It was ranked #1 in 2018.
- Vermont: $2.21 – Vermont takes third place, with an index rate of $2.52. It jumped quite a bit from 2018, when it was ranked #9 in the U.S.
- California: $2.16 – California just misses a podium finish with its index rate of $2.16. It took second place in 2018.
- Hawaii: $2.08 – With an index rate of $2.08, Hawaii rounds out the top 5 states with the highest workers’ compensation costs. It’s up from a ranking of 13 in 2018.
Top 5 States with the Lowest Workers’ Compensation Costs
Using the same study we referenced above, let’s take a look at which states in the U.S. have the lowest workers' compensation costs for small business owners:
- North Dakota: $0.67 – North Dakota takes the crown for the state with the lowest workers’ comp rates, with its $0.67 index rate being just 47% of the median. This puts it at 51st place (including Washington, D.C.). North Dakota also had the lowest workers’ compensation costs in 2018, so it’s a repeat winner.
- Arkansas: $0.72 – Arkansas comes in a close second to North Dakota, with an index rate of $0.72. The Natural State ranked 50th in 2020, up from its position in 49th in 2018.
- Indiana: $0.77 – Indiana has the third-lowest workers’ compensation costs with its $0.77 index rate. It’s ranked 49th in 2020, so it dropped one rank from 2018, when it was ranked 50th.
- West Virginia: $0.79 – West Virginia’s index rate of $0.79 earns it fourth place. In both 2018 and 2020, it ranked 48th out of all 50 states plus Washington, D.C.
- Utah: $0.85 – Utah rounds out our list, with an index rate of $0.85. Like West Virginia, it maintained its ranking, coming in at 47th in both 2018 and 2020.
Why Are Workers’ Comp Rates So Different By State?
There are a lot of factors that can affect workers' compensation rates. The biggest ones include:
1. Employee Coverage Requirements
Different states have different requirements for employee coverage. New Jersey, which has the highest rates in the country, requires every employer to carry workers’ comp coverage, unless they are covered by a federal program.
In contrast, Texas doesn’t require employers to have workers’ comp coverage at all, unless they are working directly for the government. As you may expect, Texas has much lower costs compared to New Jersey, with an index rate of just $0.98 per $100.
2. Required Benefit Coverage
In addition to who’s covered, it’s important to keep in mind the amount of benefits that a worker will actually get if they're injured.
In general, states with higher payouts for temporary disability, permanent partial disability, permanent total disability, and death will have higher workers’ compensation rates. In contrast, states where payouts and coverage are lower will tend to have lower rates.
3. Top Industries in the State
Organizations like the NCCI or the state workers’ comp board will categorize jobs throughout the state using “class codes” and determine the level of injury risk for each job. As an example, someone doing clerical work in an office has a much lower risk of being injured than a person working in a coal mine, an oil field, or as a logger.
So if a state has a large percentage of people working in riskier jobs, workers’ compensation rates will usually be higher. In contrast, states with lots of low-risk jobs may have lower rates. This can also affect companies on a case-by-case basis – workers’ comp will typically cost more for an oil and gas company or a utility company than it would for an IT company, for example.
How Can I Get An Estimate For Workers’ Comp Insurance?
While the premium index rate is the primary determining factor when it comes to how much you’ll pay for workers’ compensation insurance in your state, it’s not the only factor.
Estimates for workers' compensation often take other factors into account, like your payroll, your past workers’ comp claims history, your line of business, the risk of each employee’s class code , and a variety of other factors.
If you want to get an accurate price for your workers’ compensation coverage, request a quote through WorkCompOne. We make it easy for small business owners to get quotes online, and we work with multiple insurance carriers to get you the best price for the coverage you need.
With just a little bit of information about your industry, your business, and your state, we can match you with the workers’ compensation insurance that’s right for your workers, and for your budget, too. So don’t wait. Get a quote online today , and see why small business owners throughout all 50 states choose WorkCompOne.