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Work Comp Wednesdays – How is Workers’ Compensation Insurance Rated?

Welcome to Work Comp Wednesdays! Insurance People is the industry-leader in North Carolina workers’ compensation insurance. Each week, our team takes a frequently asked question and expands on the issue for our clients, prospective clients, and community members to better understand the confusing nature of Work Comp.

Common FAQ’s: How much does my work comp cost? How is my work comp premium calculated?

Work Comp Premium – Payroll & Job Classification:

Although Workers’ Compensation insurance is one of the most frustrating coverages to understand, it is one of the easiest coverages to produce a quote. The main two factors used to calculate a Work Comp premium are: 1) Company Payroll and 2) Job Classification (Class Code) Rates.

Why do I need to provide my payroll for work comp?

Workers’ Compensation insurance covers medical and disability payments for employees injured by workplace accidents. For insurance companies to match risk to price, they must understand how much employees are ‘worth’ (their payroll) for one year (policy period).

Once the insurance carrier knows the entire payroll for the company, they divide the payroll into sections based on job classifications. Certain jobs are riskier and more hazardous than others – each job classification is assigned a rating value that represents the risk (potential injury) it opposes to the insured and the insurance carrier.  The rating values represent the expected claim cost per $100 in payroll for each specific job classification. Let us look at some examples based on job classification:

Example 1 – Plumbing Company

$150,000 Payroll/100 x $1.86 Rate = $2,790 Premium

Example 2 – Shoe Store

$150,000 Payroll/100 x $0.74 Rate = $1,110 Premium

Example 3 – Roofing Company

$150,000 Payroll/100 x $9.61 Rate = $14,415 Premium

As you can see, the rating values of different job classifications can make a substantial impact on an organization’s Work Comp premium. Experience Modifiers can also leave the same effect, for more information on how an Ex Mod can affect Work Comp, please read our last Work Comp Wednesday – What is the Experience Modifier?