A form of insurance that pays workers should they injure themselves at work or become disabled as a result of their job, workers compensation plans offer coverage of medical fees related to those injuries, and when an employee accepts the insurance coverage, they waive their right to sue their employer.
A legal requirement in the majority of states throughout America, many companies choose to engage with a payroll service to help them select the most comprehensive workers compensation insurance policy. Not only can working with them help you narrow down your options, but it can also ensure that you have the maximum coverage, at a minimum cost.
However, while seeking professional assistance to choose the right policy is recommended, it is sensible to have a basic understanding of how the cost of coverage is calculated:
Calculating the cost of workers comp insurance per employee:
Firstly, you need to establish what class code your employee falls under
Based upon the nature of the industry your business is involved in, class codes are set either by your state workers comp agency, or by the National Council on Compensation Insurance.
Work duties and the level of risk involved in the job are what class codes will ultimately be based upon, and experts examine data from each class code – including data surrounding workplace injuries and previous claims – to help them decide upon a rate.
To discover your class code, you’ll need to think about what products services and/or products you sell, the types of tasks your employees are expected to carry out, and whether there are contractors or subcontractors that also require coverage.
Secondly, you’ll need to find out the premium rate for the employee’s class code
Rates are given in dollars and cents for every $100 of payroll for each class code, and while you can ask for the rates of a variety of workers compensation insurance providers, it makes much more sense to have a payroll services provider do that for you. Getting the best price typically entails making inquiries with many different providers, and this can be both time consuming and confusing. Engaging with a third party, however, alleviates a lot of the work and helps you make sense of the options.
Lastly, you must calculate your annual payroll for every employee and do some sums
Without a clear understanding of your payroll numbers, you’ll struggle to calculate the cost of workers comp per employee, but if you’re already working with a payroll provider, they’re in the best position to carry out such calculations for you. Full and part time employees, along with temporary or seasonal workers must be taken into account.
At the end of the annual policy, your final workers comp rate can be adjusted to account for initial over, or under-estimated payroll projections.
When you have determined the annual payroll for each employee – or at least an estimated figure – divide that number by 100 and multiply it by the premium rate for the class code, to give you the total cost of workers comp for that employee.
Other factors will also determine the total cost of worker’s comp
The steps above will help you arrive at a rough estimate of the cost of insurance for each employee, but to get a more accurate figure, you’ll need to account for other factors such as how many employees you have and where your business is located.
Why not simplify workers compensation insurance by liaising with a payroll service provider, who will take care of every aspect for you, and get you the very best coverage, at the very best price.