How is Your Workers Compensation Premium Calculated?
No matter the size of your company one of the most important things to do and basic costs of doing business is insuring your employees against injury on the job. On the job injuries often increase your experience modification rating, which increases your premium.
How Workers’ Comp Premiums are calculated Workers compensation premiums are calculated according to how employees are classified (with regards to the specific type of work they perform) and the rate assigned to each employee classification. Dames The premium rate itself is expressed as dollars and cents per $100 dollars of payroll for each class code. In most states, the NCCI determines the classification rate and experience modification factor.
Factors that Go into Setting Workers Compensation Premiums · Size of the employer’s payroll (Bigger premiums get automatic premium discounts) · Employee job classifications (Lesser risk equals lowers manual rates) · Company’s claims experience (Fewer claims equals lower experience modifiers) Premiums for workers’ compensation insurance are calculated by Payroll (per $100) X Classification Rate X Experience Modifier = Premium.
As an example, if you have a $100,000 payroll and your classification code has a $10.00 rate per hundred: Your manual premium before credits and discounts would be 100k/100 ($1,000) x $10 = $10,000. Keep in mind this calculation is before the application of your Ex Mod or premium volume discounts. Additionally, insurance companies file their rates in most states and may have multiple tiers of rates for different risks.
Therefore it’s important to shop multiple carriers when purchasing workers compensation insurance. How Your Payroll Affects Your Workers Compensation Rate The basis for an employer’s workers’ comp insurance premium is your payroll. For each $100 dollars of your payroll, there is a specific rate, which is determined by the classification codes of your employees. If you can keep detailed records for what employees are doing on multiple jobs or in different aspects of their job you may be able to break out that portion of payroll and potentially save on premium.
How Your Employer Classification Affects Your Insurance Rate Businesses are separated into groups according to the type of work they do. This classification system identifies which type of work presents more risk to the employees performing these tasks. In almost all states, the workers comp classification system is maintained by The National Council on Compensation Insurance (NCCI). How Your Experience Modification Factor Affects Your Premium Your experience modifier – typically referred to as your Ex Mod – is a numeric representation of your company’s claim experience. Ex Mods are based on how your business compares to others in your industry with similarly classified employees. An average Ex Mod starts at 1.00. Employers with fewer and less severe accidents than average have a MOD of less than 1.00. It will generally take a few years of consecutive coverage to be effected one way or the other regarding an Ex Mod. However, employers who demonstrate little to know claims are more likely to receive underwriting credits on their renewal policies.