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How Much Does Workers' Compensation Insurance Cost?

Budgeting for expenses is just one of the many responsibilities you face as a small business owner. But how much should you account for when it comes to workers’ compensation insurance?

The answer varies depending on a number of factors, including your industry, where you’re located, the size of your business, and claims history. 

Unlike other small business policies, workers’ compensation is regulated at the state level, so rates and coverage requirements also differ from state to state. Almost universal, however, is that employers are legally required to carry workers’ compensation insurance that covers all employees on their payroll.

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How to Calculate Workers' Compensation Insurance Costs

Your work comp quote will be based on four main factors:

  • Where Do Your Employees Work? Workers’ compensation is regulated at the state level, which means rules and rates vary from state to state. Your business must comply with the states where your employees perform work—not necessarily where the business was founded or is based.
  • What Do You Do? Your business is evaluated based on the jobs performed and potential risk for physical illness or injury. Workers’ compensation premiums are calculated, in part, by the kinds of work performed. It’s important to classify employees accurately—based on what they spend the majority of their time doing—because this could alter your premium dramatically.
  • What Size Is Your Business? Most states treat part-time and full-time employees the same, and calculate cost based on payroll size.
  • What’s Your Record? Your claims history is used to gauge how safe your workplace is and how likely you are to have a claim in the future. 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.

We'll cover each of these factors below, starting with workers' compensation rates. 

Workers' Compensation Insurance Rates

To arrive at a quote for a work comp policy, it’s important to understand how workers’ compensation rates are set.

Workers’ compensation insurance is regulated at the state level, which means each state has its own workers' compensation laws. State law dictates who needs to carry workers' comp insurance, where you can buy it, and which workers must be covered by the policy. State regulations, healthcare costs and other factors impact the workers' compensation rates in each state. 

Rates are set by collecting and analyzing workers’ compensation claim data from all businesses operating within that state. Rates are set by one of the following:

Find out what ruling body sets workers’ compensation rates in your state.

Some states are considered base rate states, which means all insurers are required to use the workers’ compensation rates set by the state rating agency. Outside of base rate states, workers’ comp insurance rates are used only as a benchmark and are not mandated.

Classification Codes 

Classification codes (“class codes”) are key to determining the final cost of your premium. Defined by the NCCI or your state, class codes are assigned to a business based on the type of work your employees do. This code corresponds to a standardized list of industries, and it’s a way for insurance carriers to categorize companies. 

For example, plumbing’s class code is 5183, and carpentry’s is 5403. It’s important to note that some businesses have only one class code, whereas others may have several. A carpentry business, for instance, has a governing class code of 5403 as well as class codes for clerical and sales employees.

NCCI also collects extensive injury and claims data, and provides advisory rates to insurance carriers that reflect the relative risk of a workplace injury. Each carrier has its own models for evaluating risk and calculating premium cost, but generally speaking, some class codes may be more difficult or more expensive to cover if your industry is considered high-risk.

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.

You can also use WorkCompOne’s online quoting tool to find your classification code through a keyword search.


Since workers’ compensation is governed at the state level, requirements, costs and carriers will vary depending on your location.

Some states, for instance, have a private work comp market that allows you to shop around for the most competitive quote, whereas others require businesses purchase workers’ comp insurance through a state fund. In most states, there's both: businesses can purchase insurance from an agency or carrier or from the state fund, which competes with the private market.

Additionally, rates can be adjusted statewide to reflect changes in performance of the state’s workers’ compensation system as a whole. For example, lower healthcare costs and improved workplace safety could mean fewer claims, which ultimately can result in lower rates.

The economic makeup of a state also influences rates; some state economies center around high-risk industries like logging or trucking, whereas others have a lower risk of injury.

Not only that, but the state’s general attitude toward businesses and workers affects cost; in more liberal, worker-friendly states, courts are more likely to favor employees, thus resulting in more awarded claims and higher overall costs.

Keep in mind that both your insurance agent and carrier must be licensed in your state, and your business must comply with the states where your employees work—not necessarily where the business was founded or is based. Be sure to refer to your state’s resources, or talk to an insurance agent about securing policies that comply with each state.


Another factor that goes into workers’ compensation cost is the size of your workforce. Most states treat part-time and full-time workers the same. This means cost is actually not determined by the number of employees you have, but on your total payroll.

When buying a policy, use an average of your payroll throughout the year. Even if this fluctuates, you can typically contact your insurance agent to increase or decrease the payroll size, and in doing so adjust your premium amount and level of coverage. Under-reporting payroll can result in unexpected expenses when your business is audited and you’re required to make up the difference in premium.

Experience Mod

Lastly, your experience modification factor (“Experience Mod”) is a credit or debit applied to your premium to factor in your past history of claims. Similar to classification code, an experience mod is This number, determined by an independent rating bureau (NCCI in most states), based on actuarial data, and is mandatory for carriers to include.

While your class code groups your company with similar businesses, your Experience Mod allows you to demonstrate above-average workplace safety—and reap the benefits. Beyond this, individual underwriters may choose to apply their own credits or debits to a quote.

If you’re a new business with no history or prior coverage, you won’t yet have an experience mod, and this can lead to higher premiums. With no prior history to evaluate, work comp costs may be higher during your first three years in business.

If you have a history of claims, you can expect to pay more and should consider implementing safety programs to avoid future claims and bring down your cost. Few or no claims, on the other hand, show that you have a safe workplace, and can reduce your annual premium. And safety pays off: Your claims record can commonly influence premiums 10% to 25% in either direction.

Review your Experience Mod annually with your insurance agent to see if you qualify for a reduced premium.

Average Workers’ Compensation Cost for Small Businesses

For every $100,000 in payroll, the average workers’ compensation policy can range from a few hundred dollars to a few thousand dollars annually.

Your state and the type of work can both dramatically influence what you can expect to pay. For example, here’s how rates compare between Indiana and California, and for a clerical vs. plumbing business. Both are based on $100,000 in payroll.

Average Annual Workers' Comp Insurance Cost
Example of annual workers' compensation insurance policy cost for $100,00 payroll, 2018.


Physically demanding jobs have higher rates than office jobs, but rates can also vary widely by state. This is because workers’ comp covers legal costs as well as medical bills and missed wages, which raises rates in more litigious markets and state that have higher healthcare costs and higher wages.

How to Calculate Cost 

We’ve already outlined the varying factors that impact the average cost of a workers’ comp insurance policy, but to estimate what costs might look like for your business specifically, you’ll need to take a close look at the numbers. This includes gathering payroll information for each employee, knowing your class code(s), and determining cost per employee.

To put it into a formula: Estimate your workers’ compensation cost by dividing total payroll by 100, then multiplying that number by your workers’ compensation insurance rate:

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

For example: A rate of $3.00 means that a business with $100,000 in payroll would pay $3,000 annually in work comp premiums.

To estimate your workers’ compensation cost, start with these general steps:

  1. Add up gross payroll for each employee. This includes part-time, temporary and seasonal employees.
  2. Find your class code(s). WorkCompOne’s online quoting tool makes it easy.
  3. Look up your workers’ compensation rate. Find out which agency sets the workers’ compensation rates in your state.
  4. Calculate the estimated cost per employee. To do this, you’ll multiply your workers’ compensation rate by your total payroll from Step 1.
Remember, this is only an estimate. To get the most accurate workers’ compensation cost, talk to an experienced agent.


How to Buy Affordable Workers’ Compensation Coverage

If you need to purchase work comp coverage, you can get a quote from an insurance agent in just a few minutes.

When evaluating your quote, you might look for discounts, such as:

  • Workplace safety programs. A formal, recognized program introduced by the employer will be recognized by most insurance companies. Talk to your insurance agent or carrier to find a program that qualifies.
  • Owner exceptions. In some states, employers can choose to exempt themselves from coverage, which can lower workers' compensation costs.
  • Formal training programs. Many structured safety training programs, such as a 90-day program for new hires, can result in a credit on your policy.
  • Formal safety administrative position. In larger businesses, a Chief Safety Officer or similar role might be necessary and beneficial to control costs.
  • Payment plans. Many carriers offer a variety of payment plans (annual, semi-annual, quarterly). Paying in larger installments won’t affect your premium, but it will reduce billing fees tacked onto each payment. These savings can add up for small businesses.
  • Payroll reporting. An increasingly popular option, payroll reporting allows businesses to pay a more exact premium on a monthly basis. Traditional premiums are based on estimated payroll, and the difference is billed or credited after an annual audit. With payroll reporting, the business owner is responsible for reporting the company payroll for that month, and is billed for that amount. For businesses that keep a close eye on cash flow, this can be a good alternative.

Workers’ compensation insurance protects your business legally and financially. By working with an experienced insurance agent, you can get the coverage you need at a fair, affordable price.

Ready to get started? Get a free quote from WorkCompOne in less than 10 minutes.

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