If you have an employee, whether part-time, full-time, or even a relative, your business can be held liable for any work-related injuries or illnesses. This is a gigantic risk that can easily be transferred to a workers’ compensation insurance carrier.
According to the United States Department of Labor, a total of 4,836 fatal work-related injuries were recorded in 2015, which translates into 18.6 deaths per day in a five-day work week. Every death represents significant expenses to the surviving loved ones, and without workers’ compensation coverage, most employers would be held liable for at least a portion of these costs. If for no other reason, small businesses should protect their employees because financially, it’s the right thing to do.
Workers’ compensation insurance is a policy that protects both employees and employers when there is a work-related injury or illness. One part of the policy provides financial protection to workers who are injured, become ill, or are killed as a result of a work-related event. The other part protects the employer because employees cannot bring lawsuits against their employer for medical expenses if a workers’ compensation policy is in force. This is referred to as an exclusive remedy.
Workers’ compensation insurance is a packaged policy that provides several different coverages to provide financial protection for work-related accidents and illnesses.
In almost every state, workers' compensation rates are regulated by the state. Typically, each worker classification, i.e., the type of job, is assigned a rate per $100 of payroll, and then the rate is a multiple of that. Here are some examples from the National Council on Compensation Insurance (NCCI) rating pages that show the significant differences between business classifications:
|Description||Class Code||Rate per $100||Annual Pay||Cost/employee||Admin Fee*|
*The Administration Fee is an annual per policy fee charged by the insurer with the amount determined by the insurance carrier.
The rates listed above are for businesses with no loss history, meaning no losses or previous claims. Businesses with a loss history can be charged up to five times more than the low rate posted by the state. The rates listed are per employee and should be multiplied by the number of employees on the business’ payroll.
An example of the lowest workers’ compensation rates versus the highest rates are as follows:
Tax Preparation Service with 3 employees and a total annual payroll of $140,000:
Class Code: 8810
Rate per $100: $0.12
Rate for $140,000 annual payroll: $168
Admin Fee: $250
Total Cost to Employer: $418
Painting Contractor with 3 employees and a total annual payroll of $140,000:
Class Code: 5474
Rate per $100: $8.99
Rate for $140,000 annual payroll: $12,586
Admin Fee: $250
Total Cost to Employer: $12,836
These policy examples are based on the business not having any previous workers’ compensation claims. The primary factors that will affect your workers’ compensation costs are:
Depending on the state you do business in, the workers’ compensation requirements can vary significantly. States that are considered an NCCI state have similar regulations and experience ratings but still use their own rate structure. NCCI represents the National Council on Compensation Insurance and was created by the insurance industry to standardize the details for calculating workers’ compensation insurance premiums. Some notable differences between states are as follows:
Prices range from $35 to $2,876 and also vary depending on your zipcode: