Work Comp premium is based on a fundamental math formula:
Total Yearly Payroll x Base Rate(s) = Estimated Yearly Work Comp Premium
Please note that the workers comp premium is sometimes adjusted (higher or lower) by a MOD, miscellaneous credits/debits, etc.
Lets take a closer look at the following core premium formula components: Base Rates and Payroll,
Base Rates are determined by the classification codes of your business. 700+ class codes exist. Generally, business categories with lower injury frequencies have lower base rates than industries with more frequent workers comp claims.
Each state bureau (and NCCI) determines base rates by analyzing claim data of each of the 700+ class codes. In turn, base rates for each class code are produced and published by each state every year. For example, the state of California might produce a base rate for class code 8810 (office clerical) of $1.05 per every $100 of payroll, while Alabama might produce a base rate for class code 8810 of $.15 per every $100 of payroll.
Work Comp Insurance is regulated at the state level, so each state makes their determination as to their base rates for the 700+ class codes. In turn, insurance carriers evaluate companies and can either adhere to these published base rates or make base rate “adjustments” either higher or lower, depending on the business being underwritten(evaluated).
Payroll (more accurately, remuneration)
So what the heck is remuneration?
Remuneration is more than just payroll. It means money or a substitute for money.
Remuneration generally includes the following items:
Payroll, bonuses, holiday/sick pay, etc. and several other components.
Remuneration generally excludes items such as: tips/gratuities, group health insurance, etc. and other elements.
Work Comp Insurance is regulated (rules, laws, etc) at the state level. Therefore, the general info we share with you may or may not be applicable in your state. Please contact us for more state specific workers comp information or consult with your state workers comp division.
At mentioned, the overall yearly premium in some instances is adjusted (higher or lower) by MODs, miscellaneous credits/debits, etc. which we address in other blog posts.
If you have questions about the work comp premium formula or need a new workers comp policy, please call us at 1-800-860-9467 or kindly submit your inquiry here.