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# How to Calculate Workers Compensation Cost Per Employee

Understanding workers compensation cost per employee is generally valuable for planning, risk management, and compliance purposes. Your business may want to calculate workers’ compensation costs per employee for the following reasons:

• Budgeting and financial planning
• Cost analysis and identifying high-risk areas
• Benchmarking
• Contract bidding and pricing
• Compliance with legal requirements

Let’s break it down.

## Determining Cost

To figure out how much workers’ compensation insurance will cost, you might need to talk to your work comp professional. They can help you determine the annual premium based on factors like payroll, class codes, experience rating, rate deviations, size discount, and losses.

Workers’ compensation insurance premium is determined by your company’s actual payroll. Initially, it’s based on your estimated payroll for the upcoming 12 months. At the expiration of the policy, the insurer will audit it to ensure the payroll figures used are accurate. This could result in an additional bill or a refund. That’s why it’s important to get the cost right upfront for budgeting purposes.

The premium your company is charged for workers compensation is unique to your company based on a variety individual factors.

## Calculating Cost per Employee

• Class code for employees – The type of work your company does is broken down into a four digit class code.  The class codes for employees, are determined either by your state’s worker’s compensation agency.  In most states this is NCCI, the National Council on Compensation Insurance.
• Once you determine which class the employee falls in, you will need to determine the rate for their class code. You can obtain this information by contacting different insurance carriers for quotes, which will be given in dollar amounts based on the payroll for each code.
• To determine the cost per employee all you need to do is take the annual salary for the employee, divide it by 100 and then multiply by the class code rate for that position.  Here’s an example:
• Salary of \$50,000 and class code rate of \$1.25.  \$50,000 / 100 = 500x\$1.25 – \$625.  So roughly the cost of workers compensation insurance for that worker is \$625 per year.