Workers’ compensation rates are a key piece of how much a work comp insurance policy costs. In short, workers’ comp costs follows this formula:
(Payroll* x Workers’ Comp Rate) x (Credits or Debits) = Insurance Quote
The rate is set by your state’s rating agency or bureau and based on several factors. Read on for everything you need to know.
*Payroll in hundreds of dollars. $60,000 annual payroll = 600 would be used in the formula above.
Workers’ Compensation Insurance Rates
A workers’ compensation insurance rate is the base price set by the state, and is used to calculate your total premium amount. This means that rates can vary from state to state — and they often do, based on factors like the number of workers’ compensation claims being filed (and awarded) and regional healthcare costs.
In fact, average premium rates can range from under $1.50 to $3.00 or more, according to a 2020 study published by the Oregon Department of Consumer and Business Services.
If these numbers seem low, it’s because workers’ compensation insurance rates are represented as the cost per $100 in payroll. For example:
- A rate of $1.68 means that a business with $100,000 in payroll would translate to $1,680 annually in work comp premiums.
- A rate of $0.35 means that a business with $100,000 in payroll would translate to $350 annually in work comp premiums.
However, as the formula in the previous section illustrates, the rate will give you an estimate of workers’ comp costs, but 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 insurance company to another. We talk about this more below under “Base Rate States.”
Cheat Sheet: How to Interpret Work Comp Insurance Rates
Want to understand work comp rates in a hurry? Here are the basics:
- Based on classification code: Each class code is assigned its own rate. A plumber (NCCI code 5183) will pay a rate of $1.68 in Indiana, while a clerical worker (NCCI code 8810) will pay $0.35.
- May differ by state: For example, one study found that in 2020, New Jersey state rates ranged from $2.50 - $2.99, and Florida rates were less than $1.50.
- Represented per $100 in payroll: Divide your gross payroll by 100, then multiply by the rate for estimated premium.
- Not the same as work comp rate: Find a chart of rates per week? This is likely the state-mandated rate paid out as a portion of wages for injured employees who are unable to work. Don’t confuse this for your insurance rate.
Workers Compensation Rating Bureaus
Workers’ compensation is regulated at the state level, which means each U.S. state has its own laws and regulatory bodies. 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.
From there, you may be able to look up or contact the rating bureau for your classification code.
How Rates Are Set
The rating bureau’s responsibility is to set the rate, or baseline cost, of workers’ compensation insurance for all businesses operating within the state. It does so by collecting and analyzing loss data, or workers’ compensation claims for workplace injuries and illnesses.
This data can show patterns, such as changes in:
- Number of or types of claims being filed.
- Cost per claim paid out.
- Total healthcare costs for workers’ comp claims.
- Days of work (payroll) missed by injured workers.
The data are also evaluated based on classification code. Class codes are four-digit numbers that are assigned to businesses based on industry. By grouping together similar businesses, data can be collected on workplace injuries and workers’ compensation claims. Then it’s used by the rating agency to assess the relative risk associated with that type of work, and assign a rate based on recent losses (claims that have been filed and paid out).
While rates are specific to each class code, statewide rates are often raised and lowered at the same time and proportionally, based on a percentage. Some recent examples of this:
- “California OKs Workers’ Comp Advisory Rate Decrease of 1.3%”
- “Workers’ Comp Loss Cost Decrease of 9.2% Approved in Tennessee”
- “Florida Workers’ Comp Rates Going Down, Again”
These rate adjustments are made to reflect changes in performance of the state’s workers’ compensation system as a whole, such as lower healthcare costs or improved workplace safety, resulting in fewer claims. Court decisions can also influence rate adjustments.
You Might Also Like: Everything You Need to Know About Workers’ Compensation Costs
Base Rate States
Base rate states require all insurers to use the workers’ compensation rates set by the state rating agency. That said, in most base rate states, other credits and debits may be applied by the insurer to calculate the final workers’ compensation quote.
Outside of base rate states, rates are used as a benchmark but are not mandated. Instead, insurance carriers submit their rates to the state’s regulatory body for approval, and rates may vary based on their individual history of losses.
Workers’ Compensation Cost
Looking for more on workers’ compensation cost? You might also like:
- How Much Workers’ Compensation Costs
- How to Get a Workers’ Comp Quote
- How to Save Money on Small Business Insurance
- How to Choose the Right Limits of Liability
Get Workers’ Compensation Insurance
For the most accurate rate and best price, request a quote from several insurance carriers. Or, use an independent agency, which can shop around and present you with the most competitive quote. WorkCompOne was built by and for small business owners, so you can stay compliant for less time, money and hassle than traditional insurance agencies.
Get a workers’ compensation quote in 5 simple steps.
Editor's note: This post was originally published in 2019, but has been updated to be more current and comprehensive.