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Workers compensation insurance provides medical coverage and wage reimbursement for employees that are injured on the job. In exchange for the coverage, an employee forfeits his or her right to sue your company for negligence in the event of an accident. Most states require companies with at least one employee to carry workers compensation insurance. Although, some states make exceptions for businesses with just a handful of employees. Check with your state's insurance department to find out if you are required to purchase the coverage.
Even if you're not, the added protection of workers compensation insurance provides peace of mind. Without it, if an employee is injured on the job you will be personally liable for damages. Medical expenses and lost wages can quickly add up to the tens of thousands of dollars or more!
Workers Compensation Insurance Average Costs
The cost of workers compensation insurance is regulated by each state. The state sets rates based on a formula that considers both the risk involved in the profession and how much each employee makes.
Every type of occupation is assigned a risk classification based on the frequency of on-the-job injuries and their severity. A contractor or roofer is going to have a much higher risk classification than a retail store owner. The higher the risk classification, the more you'll pay. That rate is then multiplied by 1 percent of each employee's salary to determine a weekly rate.
- In California, an office clerk has a risk rate of $1.25. For a clerk that makes $450 per week, the workers compensation insurance rate works out to $5.63 per week.
- In Washington State, a plumber has a risk rate of $2.18. For someone making $600 per week, the weekly premium would be $13. A garage door installer has a risk rate of $4, which translates to $24 per week in workers compensation premiums for an employee that makes the same amount.
There are literally hundreds of ratings classifications. Most states offer a complete list of rates online. But, if you can't find one or need more specific information then contact your state's insurance department or workers compensation board.
Other Factors That Influence Your Premium
State guidelines don't tell the whole story. Beyond the basic formula, an insurance carrier can adjust your rate based on your company's safety history. If you've had several accidents in the past, it might be higher. If you haven't had any, you'll probably pay less. As with all types of insurance the rates vary from carrier to carrier.
Once your initial rate has been determined it usually applies for the first three years. After that time, the insurance carrier will reassess the rate based on your track record during that time.
Cost is an important consideration in choosing a worker's compensation insurance carrier, but it shouldn't be the only consideration. You should also look at the services provided, the company's familiarity with your industry and the accessibility of claims adjustors.