How much is workers compensation insurance?

If your business has employees, carrying workers’ compensation insurance is often mandatory — and understanding how much you’ll pay is crucial to budgeting and compliance. While rates vary widely depending on location, industry, and payroll, we’ll explore typical costs, what drives them, and how you can estimate what your business should budget.

🟩 Quick Definition 

Workers’ compensation insurance covers medical expenses, lost wages, and rehabilitation costs for employees injured or made ill on the job. Premiums are based on payroll, job risk, and claims history.

Typical Cost Ranges

• For many small businesses, the median policy costs around $45 per month, or about $540 per year.

• For new policies, some businesses pay about $80 per month on average, with some paying up to about $125 monthly, depending on risk.

• Rates are often expressed as a cost per $100 of payroll — for example, a rate of $1.64 per $100 means a payroll of $100,000 results in an annual premium of about $1,640.

What Drives the Cost

1. Payroll Size

The larger your total payroll, the higher your premium. Insurers calculate rates per $100 of payroll.

2. Industry Risk / Classification

Different job types carry different risks. High-risk industries like construction or manufacturing pay higher rates than low-risk office or consulting work.

3. Claims History / Experience Modification

Businesses with frequent or severe claims have higher premiums. The insurer applies a “modification factor” that adjusts your rate based on past performance.

4. State Factors & Regulations

Each state sets its own rules and base rates, so costs can vary significantly depending on where your business operates.

How to Estimate Your Premium

Here’s a simple formula:

(Payroll ÷ 100) × classification rate × experience factor = estimated annual premium

Example:
If your payroll is $200,000 and your industry rate is $2.00 per $100 of payroll →
200,000 ÷ 100 = 2,000 → 2,000 × $2.00 = $4,000 before adjustment.
If your modification factor is 1.10 (10% higher due to claims), the adjusted premium is $4,400.

FAQs

Q1. Do small businesses pay a lot for workers’ comp insurance?
Not necessarily. Low-risk industries may pay only a few hundred dollars per year, while high-risk sectors pay thousands.

Q2. Can I reduce my workers’ comp premium?
Yes — improve workplace safety, reduce claims, ensure correct employee classifications, and compare multiple insurers.

Q3. What happens if I don’t carry required workers’ comp insurance?
You may face fines, lawsuits from injured workers, and be responsible for medical bills out of pocket.

Q4. Does cost vary if I have one employee vs. many?
Yes. More employees usually means higher payroll and greater exposure, increasing premiums.

Q5. How often should I review my workers’ comp coverage and cost?
At least annually or when your payroll, job classifications, or claims history change significantly.

Final Thoughts

Workers’ compensation insurance is a vital cost of doing business when you have employees. While the average small business pays around $500–$600 per year, your actual cost depends on industry risk, payroll, state rules, and claims history. Use the formula above to estimate your premium and reduce costs by maintaining a safe, well-managed workplace.