How Is Workers Comp Calculated for an Employer?
Workers' Compensation Insurance is calculated based on the regulations of each state, the employee classification, the employee earnings and available employer discounts.
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Government Regulations
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Each state has laws and regulations regarding the amount of workers' compensation insurance an employer is required to carry. Every U.S. state mandates that employers obtain a workers' compensation policy. However, the individual state requirements are the first factor in determining the workers' compensation calculation.
Job Classification
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The workers' compensation insurance companies examine the classifications of employment and assign risk factors. Employees that are performing jobs that have a greater possibility of a workplace accident will be determined to have a higher risk. For example, an office worker is at a lower risk classification than a construction worker, due to the likelihood of a workplace injury.
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Employee Earnings
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The risk level that is assigned to an employment classification is then applied to the employees' earnings. The insurance premium is a percentage of the employees' gross earnings. For example, if the state requirements and risk factor equal a percentage of 2.00 percent, the employer's premium will be 2 percent of each employee's gross earnings.
Employer Discounts
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A final calculation is done by the individual insurance companies. Many companies offer discounts to employers for various safety achievements. An employer that has operated for a predetermined number of days without an accident may be entitled to a lower final premium rate. Similarly, employers are sometimes offered a discount if they offer certain safety training programs to their employees.
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