How Much Does a Workers Comp Policy Cost?

How much does workers comp cost? Travelers breaks down what determines the price of a workers compensation policy – from payroll and industry type to claims history and risk exposure – so businesses can better understand their workers comp policy cost. From small businesses to complex national operations, employers of all sizes benefit from knowing what to expect when it comes to their workers comp rates. Travelers provides insights to help them get there.

What determines the cost of a workers compensation policy? 

Workers compensation insurance rates vary by state and industry classification, among other considerations. Most states require the majority of businesses to carry workers compensation coverage, making it an essential part of financial planning and risk management. Understanding how workers comp rates are calculated can help small retail shops to multi-state operations prepare for potential costs and avoid surprises.

Travelers offers competitive workers comp rates and coverage options that provide flexibility so businesses can tailor insurance solutions to their unique needs. Through risk management consultation, return-to-work support, and ongoing legislative insight, Travelers aims to help businesses support injured employees while reducing long-term costs and maintaining compliance.

What factors affect a workers compensation premium?

There’s no flat rate for workers comp insurance; the premium a business pays will depend on several key considerations, including:

type of work
total payroll
location(s) of a business, and
claims history of the business.

Travelers has deep expertise in many business sectors. Before purchasing workers compensation coverage, a Travelers insurance agent can help businesses with coverage considerations to address their unique needs and estimate the cost of a workers comp policy.

Industry and risk classification

Different types of work carry different levels of risk. A construction company will generally pay more for workers comp coverage than a retail shop or professional office. Classifications help determine the workers comp insurance premium because they reflect the nature of the work performed and the likelihood of workplace injuries.

Classification is determined using standardized codes, which are assigned based on the type of work employees perform. These codes are developed by national organizations and state-specific rating bureaus using historical data to reflect relative risk. Class codes are typically assigned to employers through a combination of existing policy history, input from agents or brokers, and review by a carrier’s underwriter. Once a policy is issued, class codes are verified during the premium audit process for accuracy.

Travelers uses job descriptions and industry details to find the appropriate classification, helping businesses avoid overpaying and getting the coverage that suits their risk exposure.

Total payroll

Workers compensation insurance premium is partly based on total payroll of the business, but it’s not just wages that count. Commissions, bonuses, overtime and certain employee benefits may also be included in the compensation used to calculate premiums. Because quotes are typically based on a rate charged per $100 of payroll, a higher payroll results in a higher overall premium cost.

Some classes of businesses may be subject to payroll caps, which limit the amount of payroll used in premium calculations. These caps vary by state and by classification, adding another layer of complexity to the process. Travelers offers tools and support to help businesses navigate these rules and can provide flexible billing options – like TravPay^® – to better align premium payments with cash flow.

For business owners specifically, there are additional considerations for how their own compensation is treated under a workers comp policy. The Travelers article on “Workers Compensation Coverage for Business Leaders” explores those nuances, though it doesn’t cover all payroll inclusion and exclusion rules.

Travelers helps businesses understand what’s included in their payroll so the policy accurately reflects employee compensation.

State and location

Workers compensation rules and rates can vary significantly by state. Considerations like set medical cost levels, benefit structures, and legal requirements, can all influence workers comp rates.

Travelers understands the complexities of multi-state operations and local regulations and can help tailor coverage to where employees work, ensuring compliance and appropriate protection across all job locations.

Claims history and experience mod

Insurers use a business’s claims history to help estimate future risk. Frequent or severe workplace injuries can lead to higher premiums. Travelers works with businesses to identify trends, strengthen safety practices, and take proactive steps that may improve long-term workers compensation costs.

One way that claims history affects pricing is through the experience modification factor, or e-mod. This rating compares a business’s injury record to others in the same industry. A lower e-mod may result in reduced premiums. Accurate claims data and effective safety programs can help improve this rating over time.

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How are workers compensation insurance quotes calculated?

A workers compensation insurance quote is determined by assessing elements like business location, total payroll and claims history. While exact pricing varies by insurer, the formula used to estimate premiums is fairly consistent across the industry.

Use this formula to help create a baseline estimate of a business’s workers compensation insurance cost:

Workers comp classification code rate x (Payroll/$100) x Experience modification factor = Premium

Note: Terrorism, Catastrophe, Surcharges & Assessments, Expense Constant, Premium Discount, and other pricing elements can also affect an employer’s workers compensation premium.

Workers comp classification code rate

Each type of work is assigned a classification code based on the level of risk involved. Jobs with higher injury risk, like roofing or trucking, have higher rates than lower-risk jobs, like office work. Insurance carriers use loss costs approved by the states, plus their company expenses to determine class code rates. Insurers apply those rates when calculating workers comp premiums.

These codes help appropriately align business premiums to the risk their employees face. Accurate classification is key because misclassifying roles can lead to an employer being charged a premium that is not commensurate with their exposure. Misclassifying a risk may also cause issues during policy audits.

Experience modification

Also called an “e-mod,” this factor reflects how a business’s actual workers compensation claims experience compares to the expected claims for similar businesses in the same industry with the same classification.

Experience rating acknowledges the differences among employers with respect to safety and loss prevention. It’s typically calculated using 3 years of claims history (excluding the most recent year), considering both the frequency and severity of those claims.

An experience rating factor below 1.00 indicates better-than-expected performance, often due to fewer claims or less costly injuries, and may result in a lower premium.
An experience rating factor above 1.00 suggests higher-than-expected losses, which may increase the premium.

Note: If an ownership change occurs, an employer’s e-mod may need to be recalculated. An employer should immediately notify its workers compensation carrier when a change in ownership occurs.

Experience rating is a mandatory plan that applies to all employers that meet a state’s premium eligibility criteria for the plan and is calculated by the NCCI or state rating bureau, depending on the state.

Payroll/$100

Workers comp premiums are calculated based on an employer’s total payroll, measured in $100 increments. That means the more a business pays their employees, the higher the premium may be. Having accurate payroll estimates at policy inception may reduce the chance of any surprises at audit. Inaccurate payroll at the beginning could lead to significant additional premium due at audit.

Payroll seems straightforward but still requires attention. Commissions, bonuses, overtime, employee benefits, business acquisitions, divestitures, and employee classification can all affect an employer’s payroll, and in turn, workers comp policy cost.

Sample workers comp calculation for a 10-person retail shop

Here’s an example calculation using typical figures for a small retail business.

Classification rate: $1.00 per $100 payroll
Annual payroll: $500,000
Experience Rating Modification Factor: 0.90 (better-than-average claims history)

Calculation:
$1.00 x ($500,000 ÷ 100) x 0.90 = $4,500 estimated annual premium*

*This is a simplified calculation for educational purposes only. Actual premium calculations can be more complex. Experience modification is subject to state eligibility requirements and do not apply to every policy. Results will vary based on specific state rates, actual payroll and e-mod. A Travelers agent can help businesses customize workers comp solutions for their company and provide a quote they can trust.

Other pricing elements such as Terrorism, Catastrophe, Surcharges & Assessments, Expense Constant, Premium Discount can also affect an employer’s workers compensation premium.

How to lower workers comp insurance costs

While every variable can’t be controlled, there are steps a business can take to help reduce workers comp costs. A proactive safety strategy and strong claims monitoring and oversight by a carrier such as Travelers can make a meaningful difference over time. Some practical steps a business can take include the following:

Implement a safety program

A formal safety program with strong protocols can help reduce workplace accidents, injuries and claims, ultimately lowering workers comp premiums. These practices demonstrate a business’s commitment to employee well-being and may even qualify the business for premium credits or other state-specific savings opportunities.

To learn about safety programs, visit the Travelers’ Risk Control Workplace Safety Education and Training page.

Also read the Travelers’ Prepare & Prevent article “Creating a Safety Culture in the Workplace.”

Monitoring claims activity

Tracking open claims, return-to-work timelines and injury patterns can uncover opportunities to reduce claim duration and associated costs. It also provides valuable insight into safety issues a business can proactively address.

Support employee training

Employees trained in safety protocols are less likely to be injured on the job. In addition, ongoing training reinforces safe work practices and helps build a culture of awareness, accountability and accident prevention.

Apply credit

Travelers offers credits for workers compensation insurance that vary by state and the individual risk profile of the business.

Contracting Classification Premium Adjustment Program (CCPAP)

The CCPAP program is available in several states, and it provides a premium credit to construction companies that pay higher-than-average wages to their employees. The goal is to offset the higher workers compensation costs often incurred by employers in unionized or high-wage settings, helping level the playing field across the industry.

Drug-free workplace program

Participation in a certified drug-free workplace program may help reduce workplace injuries and qualify a business for premium savings. Program requirements and incentives vary by state, with each state establishing its own guidelines. Employers should contact their Travelers agent for information about available drug-free workplace programs and eligibility criteria.

Managed Care Plans

Managed Care Plans are certified by the state and allow an insured to manage health care for injured workers. This means that all medical or other health care services, other than emergency care services, are provided by a designated health care network of providers chosen by the participating insured. Credits for this plan are currently offered in New Jersey, New York and Texas.

Why choose Travelers

Care for the employee, confidence for the employer

Employees are at the heart of every business. That's why Travelers is here to help employers keep them safe and support them when accidents happen. Our experienced teams guide both employers and their injured employees through recovery, from getting the right care to returning to work as soon as medically appropriate. In fact, 70% of injured employees return to work within 30 days.

Travelers approach

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