How to Calculate Workers’ Compensation Cost per Employee

You already know that workers’ compensation is an invaluable tool to protect your business. As your company changes, you may want to know how to calculate workers’ compensation cost per employee. This information helps to not only determine your workers’ comp cost, but also evaluate whether your staff levels are efficiently helping you to meet your company’s bottom line.

So how much does workers’ comp cost? Read on to learn about the three variables that you use to determine an employee’s workers’ comp rates.

Gross Annual Payroll

The first step to determine an employee’s workers’ compensation insurance cost is to look at your company’s annual payroll. Use this information to determine your employee’s gross annual payroll cost. If this is a new position, or if you do not have a full year of payroll to assess, make a projection for the employee’s gross annual pay.

Then, get out your calculator and divide the employee’s annual payroll cost by 100. This step looks the same for any employee, whether they are full time, part time, temporary, or seasonal staff. Keep your workers’ comp calculator close, because you will use it again soon.

Then, get out your calculator and divide the employee’s annual payroll cost by 100. This step looks the same for any employee, whether they are full time, part time, temporary, or seasonal staff. Keep your workers’ comp calculator close, because you will use it again soon.

Worker Class Code

Next, it is important to know the class code for the employee’s position. Class codes are determined by both your industry and the type of role the employee performs.

For example, consider a growing pet grooming business. If you need to hire an employee who schedules appointments and has no contact with animals, the class code for that person would be different from the class code for a staff member who grooms pets.

They are different because class codes signify the risk of injury for an employee. A staff member who only performs clerical duties will have a lower chance of being injured on the job than an employee who bathes cats and dogs.

It’s important to note that while there are standard codes created by the National Center for Compensation Insurance (NCCI), there may be some variance in how roles are coded depending on your state.

Workers’ Comp Rates by State

Every US state has a workers’ compensation department or board that governs how workers’ compensation insurance works in the state. These rules may include how long an employee has to make a claim after an injury, the process employers must take after they learn about an injury, and how workers’ comp premium rates are calculated.

You can go to your state’s workers’ comp official website to learn more about your state’s annual workers’ comp premium rates for employee class codes. Some states post their tables, but others may require you to contact them for that information.

Once you have the workers’ comp premium rate for the class code, you are ready for the final step. Multiply the premium rate by the result that you got when you divided the employee’s annual payroll by 100. Now you have the estimated cost to insure your employee. The equation looks something like this:

(Employee’s Annual Payroll Costs / 100) * Workers’ Comp Premium Rate = Employee’s Workers’ Comp Cost

Keep in mind that workers’ compensation insurance companies also consider your company’s history of accidents and other factors to calculate your premium rates. There may also be a difference in how they determine premiums for annual versus month-to-month coverage. The most accurate way to find out the cost for an employee is to contact your workers’ compensation provider directly.

At Cerity, we make it as easy as possible for you to purchase insurance that protects your business. Simply go to our free worker’s comp quote tool. Tell us a little bit about your business to get an affordable rate, and you can buy a policy online in minutes to cover you for the year ahead.

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Learning Center Resources


  • Top Workers’ Comp Questions
  • Small Business Resources
  • Workplace Safety Tips