The cost of workers' compensation insurance fluctuates depending on the state where your business is located. Data from 2020, the most recent year available, shows the average cost of workers' comp per $100 of payroll across different states. This list provides insight into the varying rates that businesses can expect to pay, highlighting the regional differences in workers' compensation expenses.
The first thing to know is that workers’ comp rates vary by state. So, California workers’ comp rates are different from Florida rates. Since workers’ comp insurance is handled at a state level, not federal, there isn’t a regulated rate for every state.
In 2020, the most current year with complete data, the District of Columbia had the lowest average workers' compensation rate. On the other hand, the state with the highest average rate was Wyoming. This shows the variation in workers' comp insurance costs across different states.
The good news is that in almost every state, workers' comp rates have been going down each year.
On average, in 2024, employers pay 90 cents per $100 of payroll, down from 93 cents per $100 in 2023.
While every state has a specific formula for determining workers’ comp rates, they all follow the same general guidelines. Keep reading to see the basic guidelines for workers’ comp rate calculations.
As explained above, the first thing affecting your workers’ comp rates is your state. Your state determines the base rate for your business's industry, which gives you a starting point for your rate.
A state average won't really help in determining the specific rates for your industry since industry rates vary wildly based on the level of risk involved. For example, clerical work may have a rate of less than $1, while more hazardous industries such as tree trimming can exceed $10. Therefore, it's important to determine the rates applicable to your industry.
To get an initial idea of the rates for your industry, you can refer to this blog post on workers' compensation rates according to industry.
There are some states called “rate states,” where the state decides the rate for each industry that all the insurance carriers need to use. Other states are “competitive states,” where the state decides the base rate for each industry but allows the insurance company to modify it with certain parameters.
If you’re in a competitive state, your insurance provider may add a loss cost multiplier (LCM) to determine the rate they offer in your state. The LCM gets added to the base rate for your industry to determine the rate you’re offered. LCMs will likely vary from one state to the next, even for the same industry. This means that rates can differ from one state to another and one industry to the next.
In addition to regular insurance carriers, some states have what’s called the “assigned risk pool.” This risk pool is usually managed by either state funds or the National Council on Compensation Insurance (NCCI). The funds can be used to provide workers’ comp coverage for companies, but the rates are often higher than regular carriers. This is for businesses that can’t get insurance with an insurance company, either because of a terrible claims history, a really risky industry or something of that nature.
Many other factors specific to your business can affect your workers’ comp rates for better or worse. Keep these factors in mind when you’re shopping for coverage.
Let’s start with the easiest way to lower your rate. Underwriters often can lower your rate at their discretion, if they can justify it with a good enough reason. These can be to beat a competitor's price or because you have a great safety record.
However, it’s unlikely they’ll do it without you asking. While getting your quote, ask if there are any credits your company is eligible for. A credit is a discount on your policy.
For example, New Jersey is a rate state, meaning the state sets the base rate. However, underwriters can still apply a credit if there are grounds for it. That means you may be able to get a rate quoted as low as 25% below the rate set by your state.
Pennsylvania is a competitive state, so rates may be higher than the state set, but credits can still lower your premium if you ask.
One of the most significant elements that will raise your workers’ comp rate is having a business in a dangerous industry. However, implementing an official safety program can show your insurance company that you’re doing your part to have a safe workplace and reduce the likelihood of injuries.
A safety program will ensure your employees know how to perform their jobs safely and what the protocols are for workplace injuries. When your insurance company is given proof of a successful safety program, they may lower your premiums.
When creating your safety program, consider these elements:
The U.S. Department of Labor reports that substance abuse is involved in about 65 percent of on-the-job accidents. Not only that, but between 38 and 50 percent of all workers’ comp claims are related to drug or alcohol use while at work. With numbers like these, it’s no wonder that workers’ comp insurance companies like to see substance use-free workplaces!
Regular workplace incidents and numerous workers’ comp claims can increase your rates because your insurance company will see your business as risky to insure.
Doing your part to avoid these incidents in the first place may have the opposite effect and lower your insurance rates. A drug and alcohol-free workplace is one of the best ways to prove your commitment to a safe work environment.
So, how do you create a drug-free workplace program?
To potentially save money on workers’ comp rates, include the following elements:
Your workers’ comp experience modification rate (ex-mod) is a factor that goes into your company’s workers’ comp rate after four years of business. Your insurance company converts your company’s experience modifier into your experience modification rate. This rate is determined by your historical cost of injuries as a business and potential future risks.
If your company has a higher-than-average rate of workers’ comp claims, your ex-mod will likely be higher than other companies in your area. Your ex-mod is based on a three-year rolling period, so changes won’t be seen overnight. However, there are ways to lower your ex-mod, which can also lower your premium.
To make sure your ex-mod stays where it should be, take these action steps:
Sometimes, your company can do something that will cause an increase in your workers’ comp rates. For example, Florida is a rate state, but if your underwriter is concerned about the risk of insuring your company, they can increase your rate. This addition is known as a “consent to rate,” which says the company will only provide coverage at the increased rate.
Potential causes for these increases include an uptick in workers’ comp claims, unsafe work practices, or inspection and audit issues or failures. Rate increases are typically at your underwriter’s discretion, so you must inform them of your steps to create a safe work environment.
A Real-Life Example
A new brick paving and flat concrete company sought workers’ comp insurance. Since the company was a new venture with a large payroll that included a lot of contract workers, the risk was higher than the average construction company in the area. To get workers’ comp insurance, the business owner had to agree to a consent to rate (CTR) increase.
However, when the business owner renewed his insurance, there were no workers’ comp claims against the company. Since there was proof of little risk, the CTR was removed, and the premium went down by $60,000. The company was even in a rate state, which shows how rates can differ according to the company's risk.
Using a workers’ comp rate calculator can’t give you the customized rate your company will get. Since rates differ from one industry to another and one state to the next, it’s essential to work with an underwriter to determine the workers’ comp rates for your business.
Kickstand Insurance insures businesses across the country in a variety of industries. If you’re ready to get your rates, request a free quote, and you’ll hear from an underwriter within 48 hours. With workers’ comp rates down in 2024, now’s the time to find the right coverage for your business.
Note: The information provided in this blog is intended for general informational purposes only and is not a substitute for professional legal or insurance advice. Laws and regulations regarding workers' compensation insurance are complex and vary by state and by specific circumstances. Therefore, readers are encouraged to consult with a qualified legal or insurance professional to obtain advice with respect to any particular issue or problem they might have.
Mordechai Kamenetsky, co-founder and lead agent of Kickstand, is recognized as an expert in workers' compensation. He is passionate about helping small businesses manage risks and lower their workers' comp costs. In his articles, he educates readers and clients on the intricacies of workers' comp insurance.