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Workers' Compensation Insurance Cost Calculator: How Much for a Small Business Policy?

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  |   9 minute read

To estimate your workers’ compensation cost, divide total payroll by 100, then multiply that number by your workers’ compensation insurance rate:

(Annual Employee Payroll / 100)  x Workers’ Compensation Insurance Rate = Estimated Workers’ Compensation Cost 

Read on for a step-by-step explanation, along with other factors at play in your final workers’ compensation quote.

Note: The following instructions will give you an estimate of workers’ compensation cost. There are other factors that can and will affect the final premium. To get the most accurate price for your business, request a quote in less than 10 minutes.

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1. Determine Which Employees Need Coverage

Very small businesses may be exempt from workers’ comp laws, but most businesses with employees need coverage.

Workers’ compensation is regulated at the state level, so check your state’s employee threshold for workers' comp insurance. For example:

  • In California, Illinois and Arizona, businesses with one or more employees must carry workers' compensation insurance.
  • In Virginia, employers with two or more employees need to carry workers’ comp.
  • In Georgia and North Carolina, businesses with three or more employees must have coverage.

Some states have industry-specific exceptions to the employee minimum; common ones include agriculture, domestic workers, trucking and construction.

Keep in mind that full-time, part-time, temporary and seasonal employees are all counted as a full employee. This means that if a seasonal hire will meet your state’s employee limit, you need to have coverage in place on their first day.

Note: If hiring any independent contractors, check your state for whether you could be held liable for their workers’ compensation coverage.

To learn more: Which Employees Legally Need to be Covered by a Workers' Comp Policy?

2. Group Employees Based on What They Do

If your business is required to carry workers’ compensation insurance, you must purchase a policy that covers your full payroll, regardless of whether employees are full-time, part-time, temporary or seasonal. However, the rate differs based on the type of work the employees do, and relative risk for injury associated with that work.

Most small businesses can place their employees into the following groups:

  • Primary service (plumbing, manufacturing, retail, etc.)
  • Salespeople
  • Clerical or administration
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To learn more: How to Determine Employee Class Codes

3. Calculate Payroll for Each Employee Type

With your employees in categories, add up the annual payroll for each group.

  • Full-time employees: Find annual estimated gross earnings for all full-time employees.
  • Part-time employees: Part-time workers are treated the same as full-time, though their annual payroll is likely lower by comparison.
  • Seasonal workers: Temporary workers still need to be covered, and the policy should be left in effect for the entire year. Add up seasonal wages; for example, a server earning $1,000 per month for a 3-month summer shift would equal $3,000 in annual payroll.
  • Family members: Check your state’s work comp requirements. If they need to be covered, their wages should be calculated like any other employee.
  • Hourly workers: Hourly and salary workers are treated the same under work comp laws. The hourly worker’s payroll just may be more difficult to estimate.

Gross payroll can be rounded to the nearest thousand. If you’re unable to calculate the exact payroll for the year (for example, if a worker is paid hourly), estimate projected payroll.

Actuals are reported when the business is audited at the end of the policy year. Depending on the differences between estimates and actuals, your account will be credited or debited accordingly.

Tip: If you grossly underestimate payrolls, you’ll have a large audit premium payment due in addition to your normal invoices for the following year. Aim to be as accurate as possible, otherwise, you could wind up with a hefty end-of-year bill (and a hit to your cash flow). And no one wants that.


To learn more: How to Calculate Payroll to Find Your Workers’ Compensation Cost

4. Find Your Class Code

From there, you may be able to look up or contact the rating bureau for your classification code. 

Classification code (“class code”) is a numeric code the corresponds to a standardized list of industries, and a way for insurance carriers to categorize companies. Class codes group together similar businesses, so data can be collected on workplace injuries and workers’ compensation claims.

These codes are defined by the National Council on Compensation Insurance (NCCI), an independent organization that collects workers’ compensation data on U.S. businesses. Based on the work your employees do, your business is assigned a class code that influences your final premium cost.

Examples of Class Codes

  • 5183 - Plumbing
  • 5403 - Carpentry
  • 8810 - Clerical office employees
  • 8017 - Coffee, tea or grocery dealer - Retail & salespersons

To find out your class code, it’s best to work with an insurance agent that specializes in work comp. They can help you most accurately classify your business, modify your class code as needed, and avoid paying for the wrong classification.

5. Look Up Your Rate(s)

Workers’ compensation cost is based on the rate set by your state’s rating agency or bureau. Check your state to find out what ruling body sets workers’ compensation rates.

For most states, rates are set by one of the following:

  • The National Council on Compensation Insurance (NCCI).
  • A rating bureau within the state’s regulatory body.
  • A state rating bureau independent of the regulatory body.

The rating agency provides advisory rates to insurance carriers that reflect the relative risk each industry presents. Once you know the rating agency, you may be able to look up or contact the rating bureau for your rate.

Each carrier has its own models for evaluating risk and calculating premium cost, but in general more dangerous class codes may be difficult or more expensive to cover (for example, roofing or trucking).

The workers’ compensation rate is represented as the cost per $100 in payroll. For example: A rate of $1.32 means that a business with $100,000 in payroll would pay $1,320 annually in work comp premiums, or just $110 per month.

The rate will give you an estimate; not an exact quote. In most states, insurance companies are allowed to deviate from the advised rates published by the state’s rating agency. In some cases, the advised rate may differ greatly from the one an insurance company offers you.

For the most accurate rate and best price, use an independent agency that can shop around and present you with the most competitive quote.

6. Calculate Estimated Workers’ Compensation Cost Per Employee

Now for a little math.


Let’s take an Indiana plumbing business has two plumbers employed; a master plumber who makes $80,000 per year, and an apprentice that makes $50,00 per year. It also has one office manager, who handles clerical tasks and is paid $40,000 per year.

As we mentioned earlier, this payroll is their estimated gross annual earnings, rounded to the nearest thousand.

By grouping employees by class code, we know that we need to find the sum of our plumbing payroll:

$80,000 + $50,000 = $130,000 in plumbing payroll

We look up rates in Indiana, and they are $1.68 and $0.35, respectively.

Role Class Code Rate (per $100) 
Plumber 5183 $1.68
Clerical 8810 $0.35

Rates are expressed per $100 in payroll, so we divide our $130,000 plumber payroll and $40,000 clerical payroll by $100:

$130,000 / 100 = 1,300 in plumbing payroll

$40,000 / 100 = 400 in clerical payroll

Then, multiply by the rate for that class code:

1,300 x $1.68 = $2,184

400 * $0.35= $140

Tip: Google “calculator,” if you don’t have one handy. 

calc 2

Lastly, add up the cost per class code:

$2,184 + $140 = $2,324

Based on these 2018 rates in Indiana, this plumbing business with $170,000 in payroll could expect to pay approximately $2,324 in annual workers’ compensation cost - or, less than $200 per month. 

Estimated Workers’ Compensation Quote

Role (Class Code) Payroll Payroll / $100 Rate (per $100)*  Premium
Plumber (5183) $80,000 + $50,000 1,300 $1.68 $2,184
Clerical (8810) $40,000 400 $0.35 $140
TOTAL -- -- -- $2,324

*Example of annual workers' compensation insurance policy cost based on 2018 Indiana rates.

If operating in a base rate state, this total amount is your workers’ compensation premium, before credits and debits are applied (more on that below). Base rate states require all insurers to use the workers’ compensation rates set by the state rating agency.

For those not in base rate states, the premium could vary based on the insurer you choose. Insurance carriers must submit their rates to the state’s regulatory body for approval, but rates may vary based on their individual history of losses.

To learn more: How to Calculate Workers’ Compensation Cost Per Employee

Your Workers’ Compensation Cost: Other Factors at Play

Your payroll and rate will give you a good estimate of workers’ compensation costs, but your final premium may look a little different.

A workers’ compensation rate assigns a price tag to businesses within the same industry, but workplace safety and workers’ compensation claims can vary widely from one company to the next.

The insurance carrier may take other factors into consideration when calculating a quote, so it best reflects your business.

Factors That Influence Your Premium 

  • Loss history, or past workers’ compensation claims filed.
  • Premium discount factor for companies with larger premiums (usually above $10,000 per year).
  • Experience Modifier, which is assigned to larger companies after several years in business, for either poor or excellent claims history.
  • Premium credits for such things as a formal safety program, safety officer on staff, or other measures of your company’s commitment to a safe workplace.

The insurer may apply credits or debits to the premium to determine the final quote you’re offered. To save money on your workers’ compensation policy, ask an insurance agent for advice and programs or trainings that may qualify your business for savings.

You Might Also Like: 12 Ways to Save Money on Small Business Insurance

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