Workers’ compensation protects you and your employees in the case of a workplace accident. This is the reason that most employers are required to carry workers’ compensation insurance. Workers’ comp can come with a high cost depending on your industry, so understanding how it works can help you make sure you are getting the coverage you need at the best possible price.

Factors to Considers When Computing Workers’ Comp Rates

There are several factors that contribute to the cost of workers’ comp. Some of these include direct costs like workers’ comp premiums or medical and legal costs. Other costs can include mandatory trainings, lost productivity from time off, or corrective measures. Because there are so many other costs on top of workers’ comp premiums, you need to consider what will give your company the best benefits for the best value.

How to Calculate Workers’ Comp Premiums

Workers’ compensation premiums are determined by your company’s industry, your history of claims, and your company payroll amount. Premiums are calculated based on a set formula which is written as follows:

Employee Classification Rate x Employer Payroll (Per $100) x Experience Mod Rate (mod) = Premium

To understand how to use this formula, we need to define these terms.

  • Employee Classification Rate: The employee classification is a 4-digit code that corresponds to the employee’s job responsibilities. The rate for each classification can generally be found with your state’s department of labor.
  • Employer Payroll (per $100): For this piece of the equation, you need to take the employee’s anticipated yearly taxable payroll and divide it by $100.
  • Experience Mod Rate (e-mod): The Experience Mod Rate or e-mod is an analysis of the number of claims your business has received in relation to other businesses in your industry. The average e-mod is 1.0. Your e-mod can be below or above the average depending on how you compare to others in your industry.

Let’s say you have an employee that works in a retail store. This employee falls under class code 8017 with an Employee Classification Rate of $1.41. To make the next section easy, we’ll say the employee is anticipated to make $100,000 of taxable income in the year. We divide that number by $100 to get $1,000 for the Employer Payroll. If we assume your e-mod is average (1.0) then we can multiply all three factors ($1.41 x $1,000 x 1) to get $1,410 as your yearly coverage rate for this employee.

How to Save on Workers’ Comp

There are several things you can do to save on workers’ comp. First, make safety a priority. If you have a low e-mod it can greatly reduce the cost of your insurance. If you had a lower e-mod in our previous example, let’s say 0.5 instead of 1, you would save over $700 yearly.

Another thing you can do to save is find the right partner for your worker’s compensation. PEOs, like Helpside, are some of the best workers’ comp providers. Helpside’s team of professionals who know how to reduce liability for small business owners while also offering better rates. If you want to find out if you can save money on your workers’ comp, contact Helpside at