Many small business owners shop around for insurance with one important question top of mind: How much does workers’ comp cost? Workers’ compensation rates range from $0.57 in Texas to $2.32 in Alaska per $100 of covered payroll. This amount is the average employer cost for workers’ compensation according to 2018 NASI data.

So, how much does workers’ comp actually cost? It depends.

The National Academy of Social Insurance (NASI) Workers’ Compensation Report shows average costs to employers by state. Although this report can give business owners a general overview of the range you might expect to pay to cover your employees, there are four main factors insurers consider when estimating your premium for workers’ comp insurance:

  1. Location
  2. Type of work
  3. Payroll
  4. Claims history


Because workers’ compensation is regulated at the state level, the location of your work affects your workers’ comp insurance costs. Your workers’ comp costs will depend partly on the requirements in the state where your work is performed. To find your state’s workers’ comp agency, visit the U.S. Department of Labor’s state workers’ compensation map.

Type of work

The type of work your employees do determines your classification code or “class code.” These class codes are sometimes defined by the National Council on Compensation Insurance (NCCI), an independent organization that conducts research on U.S. businesses. NCCI uses these 4-digit codes to categorize the types of work each of your employees performs. You can look up your workers’ comp class codes online yourself, but you should also speak with a workers’ comp insurer who can confirm you are using the correct code. 

Class codes help insurers estimate your workers’ comp rates based on the risk to employees. For example, an aircraft mechanic has a greater risk of on-the-job injury than an accountant. So the class code for the aircraft mechanic would be associated with a higher workers’ comp insurance rate. The insurer will use the class code to determine a base rate for that particular type of work. Then, the insurer will adjust your rate depending on whether your company has a greater or lesser risk than the industry average.

Size of payroll

Your workers’ comp cost also depends on the size of your workforce, and more specifically, your total payroll. It is important to report your payroll accurately because the amount directly affects your workers’ comp insurance rate. Therefore, underestimating or overestimating payroll can impact the cash flow of your business.

A workers’ comp audit (formerly known as workmen’s comp audit) compares the estimated payroll provided by the business owner at the beginning of the policy period to the actual payroll at the end of the policy year and verifies the type of work performed by the company. The audit determines how much, if anything, the premium needs to be adjusted depending on whether the actual amount is less or more than the estimate. To avoid surprises at the end of the year, make sure to review your company’s job descriptions with your insurer when you buy your policy so that you can confirm the related class codes are correct.

Payroll includes categories such as wages, salaries, bonuses, and overtime but excludes categories like tips, gratuities, employee savings plans, and employee discounts. Consult NCCI for a comprehensive list of the factors that are included in payroll for workers’ comp. And when shopping for workers’ comp insurance for your small business, use an average of your monthly payroll for your estimate.

Claims history

Insurers also consider your history of claims. They use what is called an “experience modification factor” or “experience mod” when determining your workers’ comp insurance rate. This factor must be included (by law) in defining your rate. Because it factors in your claims history, it is a reflection of your workplace safety compared to other similar businesses.

An experience mod of 1.0 is considered the industry average. An experience mod of more than 1.0 is called a debit mod (in which your losses are greater than the average) and you will pay more for insurance. If your experience mod is less than 1.0, this is called a credit mod (in which your losses are less than the average) and you will have a discounted premium.

If you are starting a new business, you will not have a workers’ comp claim history. So you will not yet have an experience mod that can be factored into your calculation. Instead, you may pay more for workers’ comp insurance until your new business has established a track record.

By promoting and practicing workplace safety, you can influence your experience mod and your rates considerably. The fewer claims you have, the better your experience mod and the greater chance that you will qualify for a lower premium.

Cut your workers’ comp costs

If you’re a small business owner, you can lower your workers’ comp insurance cost by up to 30% by purchasing your insurance from a company that specializes in insuring only small businesses.

At Pie Insurance, we know small business owners are busy, so we offer the convenience of an easy online experience and the assurance of the best possible rate for workers’ comp coverage. We’ve made getting workers’ comp insurance as easy as pie.

Thanks for reading our educational resource! Any above reference to a specific company, method, or product is meant for educational purposes only and is not specifically endorsed by Pie.