Workers’ compensation insurance is one of the most important investments a company can make in protecting its employees and its assets. It’s also a requirement for most employers in most states. When you’re looking for the best workers’ comp policy, there are plenty of factors to consider, but of course, the first one to consider is cost. You want to find the most cost-effective way to protect your business with an effective workers’ comp insurance policy, but how exactly do you calculate the costs of workers’ comp? Luckily, there’s a simple formula that can help you determine the expenses associated with workers’ comp.
Calculate Payroll for Each Employee
The first step to calculating the cost of workers’ comp is to add up gross wages for each of your employees. To do this, find the gross annual wage of each staff member. If you don’t have a set annual wage, you can simply estimate what their annual wages will be. Round this number to the nearest $1,000 — for example, if an employee is projected to receive a gross annual wage of $75,860, round this to $76,000 — and make note of the number you calculate for each employee.
Find Correct Classification Codes
Classification codes are the most important yet most frequently miscalculated part of the workers’ comp equation. A classification code is a four-digit number that a business receives based on the industry it is in. This allows accurate data to be collected on workplace injuries and workers’ compensation claims, by grouping together businesses that maintain similar operations. In order to find your company’s classification code, consider what product or service you primarily offer your customers. What tasks do employees typically perform? Are there are contractors or subcontractors who would require coverage, too? These questions will help you determine the correct classification code.
Look Up Workers’ Comp Rates
Workers’ compensation rates are set based on the rate established by a state bureau or rating agency. Each individual classification code is associated with its own unique workers’ compensation rate — which is why it’s so important to determine the correct one! In order to proceed with your calculation, you need to find the workers’ compensation rates that have been determined by your state agency based on your company’s classification code. Many states utilize rates published by the National Council on Compensation Insurance, but some states calculate their own rates independently.
Determine Estimated Workers’ Comp Cost
Once you’ve determined employees’ annual wages, your company’s classification code, and your state’s workers’ comp rate, you have all of the information you need to make your final calculation. Workers’ compensation costs are identified as the rate per $100 in payroll. You may calculate a rate of $1.87 per $100,000 in payroll, for example, which would represent an annual coverage cost of $1,870. This gives you a reasonable estimate of what workers’ compensation may cost, but insurers are typically entitled to deviate from these numbers, so it’s still important to shop for the best price.
About InsureMyWorkComp
InsureMyWorkComp is a digital brokerage that helps clients find the right workers’ compensation solution for their business needs. Unlike other online platforms, we will help you to work with an agent who can provide you the right solution for your risk profile. Our staff has over 50 years of workers’ compensation underwriting and sales experience, and we are confident that we will provide you the support that you need. For more information or to get a quote, contact us today at (855) 340-9138.