How to Estimate Workers’ Comp Premiums Based on Payroll?

When you have employees working at your company, you’ll need to carry workers’ compensation insurance. The policy protects your staff in case of an illness or injury at work. Here’s a look at how your insurer determines your workers’ comp premiums and how payroll changes can impact the overall cost.

How Does Your Insurer Calculate Your Workers’ Compensation Premiums?

Your company’s assigned rate, experience modification factor, and payroll affect your workers’ comp cost as follows:


You’ll get a rate that’s tied to the class code your insurer assigns to your company and each of your employees. The code is based on your type of business operations and associated risk, and the rate applies to every $100 you spend on payroll. However, for nannies and domestic help, the rate applies to “head count” rather than the payroll amount.


For purposes of estimating your workers’ comp costs for the coming year, “payroll” means the total amount spent on employees’ salaries, bonuses, commissions, and more. If you overestimated your payroll expenses, your insurer would issue a refund at the expiry of your policy. You’ll owe more premiums if your actual payroll amount exceeds the estimate you provided.

Experience Modification Factor

Your experience modification factor (e-mod) is all about your claims history. Employers with proper workplace safety measures and minimal claims within the prior three years get a favorable e-mode and pay lower premiums. Those with an e-mode of less than 1.00, which is the neutral value, have fewer claims than the average for their industry. If your claims frequency is higher than average, your e-mode is greater than 1.00. Hence your premium is higher.

Your insurer will combine all these factors with working out your workers’ compensation costs as follows:
Annual premiums = Your rate x (payroll amount/100).

Payroll Changes That Impact Workers’ Comp

Increment in employees’ wages and salaries will trigger an increase in your workers’ compensation premiums. Your insurer considers the following as part of “payroll” when calculating your premiums:

  • Overtime pay, commissions, and bonuses
  • Employer’s partial payment of employees’ Social Security and Medicare tax
  • Profit shared with employees
  • Cost of housing, lodging, or meals incurred by the employer on behalf of employees as part of their compensation
  • Tool allowances
  • Gift cards or merchandise awarded as part of the compensation
  • Prevailing salaries
  • Annuity plans
  • Reimbursements for undocumented, invalid business expenses
  • Payment for producing ads

However, the workers’ compensation payroll doesn’t include the following:

  • Tips offered to employees
  • Employer’s sponsorship of group insurance or group retirement plans
  • Special reward for an employee’s invention
  • Payments for termination outside of time worked
  • Active military duty compensation
  • Discounts to employees for buying employer’s goods
  • Overtime meal allowances
  • Staff uniform allowances
  • Third-party disability compensation
  • Fringe benefits like travel allowances and company cars
  • Employer’s sponsorship of cafeteria plans

Consult CF&P Insurance Brokers to Help Calculate Your Workers’ Comp Premium

As an employer, you’ll want to accurately estimate your workers’ compensation premiums to get proper coverage for your team. You should start with updating your payroll accordingly after hiring new employees, increasing salaries, or promoting team members. To assess and discuss your specific workers’ comp coverage needs, contact the experts at CF&P Insurance Brokers today. We’re happy to help you find adequate coverage based on your payroll budget.

Contact Form

Contact Us Tap To Call