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