How to calculate workers compensation cost per employee
To get a clear cost of your company’s annual worker’s compensation insurance, you may need to speak to an insurance advisor who can help you determine the cost of your annual premium. There are many factors that go in to an experience mod such as payroll, class codes, experience rating, rate deviations, size discount and losses. If you would like to try and get a general picture of what your costs for premiums will be, see the below formula.
A workers compensation policy is based upon the actual payroll of your company. The initial policy is based upon your estimated payroll for the upcoming 12 months. At the expiration of the policy the insurer or their third party representative will audit your policy. This process is in place to ensure you are neither underpaying nor overpaying. These audits can cause your business to receive either an additional bill, or a refund, which is why getting the cost right up front is the best way to create a plan for your workers’ compensation budgeting.
The algorithms used by insurers depend on multiple variables, and the costs are different dependent on state laws. If you would like to obtain an estimated amount of your premium costs, you can take these steps into consideration.
Math for Calculating Cost per Employee
- Class code for employees – Class codes for employees, are determined either by your state’s worker’s compensation agency or on a national level by the National Council on Compensation Insurance. Which code regulations to follow will depend on what state your business is located in. These codes are in place to evaluate the risk levels of employee positions.
- Once you determine which class the employee falls in, you will need to determine the rate for their class code. You can obtain this information by contacting different insurance carriers for quotes, which will be given in dollar amounts based on the payroll for each code.
- Annual payroll amount for employee – Calculate the amount of pay the employee receives per year.
- Divide payroll by 100
- Multiply the premium rate by the number you got above by the class code
Keep in mind that this number will not be final. A number of other variables such as the total amount of employees, the location of the worksite, and your experience modification may influence the cost per employee for your worker’s compensation policy.
It is also possible that the class code for an employee may change due to the duties of their job changing. These numbers may fluctuate, which is part of the reason plans are audited after an end date, to ensure more accurate readings in the future.
After some time of being covered, your experience mod will start to play into your cost per employee, as well.
Contact an Insurance Advisor
Your best bet for getting a clear picture of your cost per employee for worker’s compensation is to contact a trusted insurance advisor. With experienced professionals reviewing your information, you will get expert advice and calculations with all factors of the worker’s compensation model in place.
You may find there is a reason for a discount you hadn’t calculated, or that you had underestimated the cost. Make the process easy and plan for correct budgeting by getting quote information for cost per employee.
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