Expert answers to all your business insurance questions.
How do I get lower rates on my workers’ comp insurance?
- Workers' Comp Basics
First things first. Let’s talk about how workers’ comp is calculated.
Workers’ comp rates are calculated primarily from the size of a company’s payroll. As payroll goes up, so does the price of workers’ comp. Insurers also consider the company’s industry and the kind of jobs its employees do, plus its location and safety record.
Here’s what you need to know about all of these factors.
1. The size of your payroll.
The bigger your payroll, the more you’ll pay for workers’ comp. Pretty simple.
This makes sense, too. The more employees you have, the more likely it is, statistically, that one of them will suffer a work-related injury or illness. And the more money your employees make, the more money your insurer will have to pay out when one of them is injured.
That’s why total payroll is always the starting point in calculating your workers’ comp premium. For example, the average cost for workers’ compensation in California is about $3 per $100 of employee payroll.
But that rate will fluctuate based on…
2. The kind of jobs your employees do.
Some jobs are riskier than other jobs (think working on a crane truck vs. working an office job), and you’ll pay a higher percentage of your payroll to get workers’ compensation insurance for those kinds of jobs.
That’s why, when you apply for workers’ compensation, your insurer will ask what kind of work your employees do. They’ll use that information to help determine how risky your business is to insure. If your employees work riskier jobs, you might need to pay $4- $5 dollars or more per $100 of payroll to get workers’ compensation. Less risky jobs will mean a lower premium. It’s not too complicated.
3. The location of your business.
Some areas see more lawsuits than other areas. For example, if your business in based in San Francisco, you probably pay a lot less for your workers’ comp coverage than a similar business in Los Angeles, simply because you’re less likely to be sued.
4. Your company’s safety record.
This is good news for conscientious employers. If your business has been around for a while without reporting a single injury, your insurance company will pay attention to that.
For bigger companies in the state of California, your safety record is quantified into a number called the experience modifier. If you have fewer accidents than other companies in your industry, you’ll pay less for workers’ compensation. (Does the experience modifier apply to your company?)
But safety record is important for small businesses, too. It will definitely matter to your insurance company.
Which leads us back to the original question: how do you get lower rates on workers’ comp?
Setting an insurance rate is a complicated process, but it’s based on a very simple idea:
The lower the chance that an insurance company will have to pay a claim on your account, the lower your rate will be.
If you can show that your business presents low risk to an insurance company, your workers’ compensation rate will be less expensive.
So, here are a couple ways to be a low risk company:
Make your company a safe place to work.
Yep. Whether your company is large or small, your safety record really does matter.
So take your employee’s safety very seriously. Make sure that your employees know how to use any equipment that could be dangerous and keep an eye on new employees until you’re sure they know the ropes. Take a long, hard look around your company to ensure you haven’t left any loose ends lying around. (Are there unlabeled corrosive chemicals in the closet? Power cords that run across walkways?) Ask your employees if they’re doing anything that makes them feel unsafe, and be sure they know that you won’t penalize them for an honest answer.
Finally, don’t assume that the people who work for you have the same “common sense” that you do. If there’s something employees need to know to do a job safely, write it down.
And that leads us to…
Institute a safety program at your company.
Insurance companies love to hear that you’ve instituted an official safety program at your company.
This doesn’t necessarily have to be complicated. Creating a safety program can be as simple as writing down the safe ways to do tasks at your company. Print out copies, sit down with your employees, and talk through the whole document. Have a conversation about safety and answer their questions.
Even for companies that only have a few employees, this is a worthwhile investment—both for your bottom line and the well-being of the people you hire.