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Workers' Compensation Insurance
Almost every state requires this policy for businesses that have employees.
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How much does workers’ compensation insurance cost?

If you have employees, you likely need workers’ compensation coverage. This policy pays medical expenses for work injuries and costs small companies about $35 per month.

What do small businesses pay for workers’ compensation insurance?

The cost of workers' compensation insurance comes down to the number and occupation of your employees, your annual payroll, and claims history. Businesses with a higher risk of worker injuries pay higher premiums.

Small businesses pay an average of roughly $440 per year to more than $600 per year for the policy.

Some of the most common injuries can happen in any workplace.

How policy limits impact workers’ comp insurance costs

Workers’ comp does not have limits for how much it pays out on a covered injury or illness. It typically covers medical costs, part of the wages the employee missed while recovering, and even disability benefits or death benefits. But most workers’ compensation policies include employer’s liability insurance, which does have limits.

Employer’s liability insurance protects you when an employee sues over their injury. For example, a technician at your telecom company could slip and fall, and blame you for providing faulty equipment. This policy would cover your legal expenses up to its limits if the case went to court.

Most companies choose a $1 million per-occurrence limit and a $1 million aggregate limit for employer’s liability insurance. If you choose higher limits, expect your workers' comp rate to increase.

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Other factors that affect workers’ compensation insurance costs

Insurance companies look at more than the size of your workforce when they decide how much to charge for workers’ compensation. They’ll also look at:

The type of work your employees do

For consistency, most insurance companies use the National Council on Compensation Insurance (NCCI) class code system to determine your level of risk and set insurance rates.

Some jobs are riskier than others – and employees who are more likely to get hurt will contribute to costlier plans.

For example, small business owners pay more to cover employees who work with their hands, like computer repair technicians and telecom installers, than employees who work all day in an office.

Some of the most common injuries can happen in any workplace, so make sure to cover your software developers, web designers, and other tech workers too.

Your annual payroll

The more your employees earn, the higher your workers’ compensation costs. Injured employees can collect partial wages, so your insurance agency will factor your annual payroll costs into your insurance premiums.

Your claims history

Your insurance company will look at your workers’ compensation claims history when it sets your premium.

As part of the calculation, your insurer assigns your company an experience modification factor. This number shows how claims from your company compared to claims from similar companies. If your claims were higher than the norm, you could expect to pay more going forward.

State laws and regulations

Because workers’ compensation laws are set by each state, where your employees work will determine how much you pay for this policy.

For example, states with strict workers’ comp regulations, like California or New York, have higher workers’ compensation premiums. But you might save money if you live in a state like Texas. Texas has low rates and is one of the only states that doesn’t require businesses to carry this policy.

How can you save money on your workers’ comp insurance?

There are two easy ways to keep your costs down.

  1. Make annual payments. When you purchase a workers’ compensation insurance policy, you can pay your premium in annual or monthly installments. The annual option costs less than paying every month.
  2. Focus on workplace safety. Business owners can avoid claims and keep rates low by taking steps to reduce work-related injuries:
    • Train employees on safe lifting techniques
    • Mop up spills promptly to prevent falls
    • Remove clutter and tape down loose cables
    • Provide ergonomic setups to avoid injuries like carpal tunnel syndrome

Beyond these two steps, you can take a number of additional measures to keep your workers’ compensation rates low. Getting these cheaper rates may require a little time and research, but it’s worth it in the long term for the savings.

Though it may be tempting to cut costs by skipping this coverage when it's not required, even sole proprietors and independent contractors should consider buying this policy. The high cost of medical bills can make it well worthwhile in the long run.

It won't cost a fortune to insure a small business. Plus, workers' compensation rates tend to go down over time as businesses are getting better at avoiding workplace injuries.

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Updated: April 14, 2022