Get a Quote

How to Get Affordable Workers' Compensation Insurance

To get cheap workers' compensation coverage, small businesses should prevent claims, review their business details for accuracy (classification codes and payroll), and work with an independent agency that can present multiple quotes. 
With so many other details of your business to focus on, workers' compensation insurance can be a hassle and an unwanted expense. But suffering a claim or getting fined for not having coverage could be far more devastating to your cash flow. Fortunately, you can factor the annual expense of a work comp policy into your budget, and there are steps you can take to make sure your worker' compensation coverage is affordable.

Workers' Compensation Premiums: What's Normal?  

The cost of workers' compensation insurance is the total annual premium to cover all a company's employees under the policy. For small businesses with five or fewer employees, this can range from a few hundred to a few thousand dollars annually.
For example, a business with a payroll around $100,000, could have an annual workers' compensation insurance cost ranging from $300 to $3,000. Where a small business falls within this range depends on largely on the type of work they do. A roofing, trucking or commercial construction company will pay more for insurance than an accounting firm or retail shop.  

What Drives Up Workers' Comp Costs

Workers' compensation insurance premiums are based on a pretty straightforward formula. The factors mostly likely to drive up costs are: 

  • Payroll. Premiums are based on a multiple of total employee payroll, which means that adding headcount, wage adjustments and accurately calculating total payroll have a direct and significant impact on the bottom line.  
  • Claims. Like any insurance policy, a history of claims can increase the premium. Maintain a safe workplace to prevent accidents and avoid claims. 
  • Workers' compensation rates. Rates can vary widely between different classification codes, because the chances of a workplace injury for a roofer are much higher than an accountant. Businesses can't control their classification codes or rates, but they can make sure they're accurate so they don't run the risk of paying for the wrong coverage. 

These factors will have the biggest impact on costs, but there are other things employers can do to control costs and optimize their insurance premium. 

How to Get Cheap Workers' Compensation Coverage 

Work with your insurance agent to see which of these strategies could have the biggest impact on your business.  

Promote Workplace Safety to Prevent Claims

Your claims history is used to gauge how safe your workplace is and how likely you are to have future claims. Any claim, big or small, will influence your premium. Conversely, months or years without a claim reflects a safe work environment and can lower your rates.
The most significant way to control your workers' compensation costs is to prevent accidents from happening and to promote safety in your workplace. Knowing your level of risk can help you better prevent workplace accidents. Learn more about the most common injuries in your industry and build employee training around those hazards. Post the required work comp posters and establish formal safety programs and first-aid procedures which, in addition to reducing the possibility of claims, can make you eligible for a safety credit.

Review and Revise Classification Codes & Payroll Annually

Insurance carriers calculate work comp premiums, in part, by evaluating the kinds of work a business performs.
As your business grows, it's important to revise the class codes and payroll on your policy. 

Workers' Compensation Classification Codes 

  • Are all classification codes on the policy correct? 
  • Are both the governing class code and other class codes (clerical, sales, etc.) included? 
  • Are employees accurately categorized by class code? 

Total Payroll 

  • Are workers classified accurately? Workers' compensation insurance should include the total payroll of employees and anyone else covered by the policy; independent contractors and other workers (such as owners and officers) might be excluded
  • Does total payroll reflect all relevant compensation (and exclude things like gratuities and fringe benefits)? 
Check at least annually to make sure your policy accurately reflects your business.

Don't Cut Corners on Coverage — It Can Backfire 

One of the most common mistakes made by small businesses is to cancel coverage when it's not needed (such as contractors when between jobs). But what saves money in the short-term may be more costly long-term: Insurance carriers review the past history of applicants and will deny coverage or charge higher premiums when they see inconsistent coverage.
Don't under-insure your business. Insuring your business for less than its true payroll can be a pricey mistake. Annual workers' compensation audits could result in an unexpected adjustment that cripples your cash flow, or you could suffer a claim and not have sufficient coverage. Make sure your policy is comprehensive. If you're going to have employees in multiple states, or employees traveling across state lines to work, make sure your policy covers these states as well.

Explore Payment Plan Options 

Some insurers offer different payment options, such as monthly, quarterly, annually or even pay-as-you-go. Consider your cash flow and accounting needs, and whether this flexibility matters to you. A less frequent billing option (such as paying for the full policy year upfront) may reduce costs. 

Whatever you choose, the insurer will audit the policy. If there have been any fluctuations in payroll, the insurance carrier will issue a credit or bill as needed.

Get an Experience Modifier (When You Can) 

If you've been in business for three years or more, you may be assigned an experience mod. The rating bureau in your state rates your business based on its history of claims the past three years. The experience mod is baselined at 1.0.
Businesses with few or no claims during this timeframe will receive lower experience mods (less than 1.0). Insurance carriers are required by law to credit your premium based on the experience mod, resulting in big savings over time.