For businesses concerned about workers’ comp insurance cost, here’s a look at cost factors, averages, and why not carrying workers’ compensation can be far more expensive.

Do you have an active workers’ compensation policy for your employees who experience work-related injuries or illness? While you might believe that your employees are protected simply by their adherence to your workplace safety policies, accidents happen.
Certain industries are more prone to workplace injuries and illnesses than others. According to the Insurance Information Institute,¹ nurses, nursing assistants, laborers, truck drivers, heavy machine operators, stockers, and retail, production, and maintenance and repair workers have some of the highest rates of workplace injuries and illnesses. But any business operates with some risk.
Therefore, it’s a good idea to carry a workers’ compensation policy. Of course, you may be concerned about the workers’ comp insurance cost for your business. In this article, we’ll discuss the cost of workers’ compensation and what factors into those annual premiums.
The costs of not carrying workers’ compensation insurance
Workers’ compensation insurance is required by law for most employers, even if you run a small business. Exceptions to this sometimes include:
- Sole proprietors who have no employees.
- Small businesses that are operated solely by family members of the business owner.
- Businesses that don’t have enough employees to reach their states’ minimum requirement for workers’ comp coverage.
- Businesses located in states where a workers’ compensation insurance policy is essentially voluntary.
To find out if you need to carry workers’ comp insurance, check your state’s workers’ compensation laws and those where your employees reside. Whether you’re lawfully required or not, it’s wise to seriously consider a workers’ compensation policy if you have any employees. The cost of it can easily pale in comparison if you’re ever held legally and financially liable for employee injuries, illnesses, lost wages, or death that result from work performed for you.
If you were legally required to carry workers’ compensation insurance but didn’t, you could also face severe judicial consequences.
The cost of workers’ compensation insurance
Nationwide, employer costs for workers’ compensation insurance vary widely. In 2020, state averages spanned lowest to highest from $0.46 (Texas) to $1.78 (Wyoming) per $100 of covered wages, according to the National Academy of Social Insurance’s 2022 Workers’ Compensation Report.
How to purchase workers’ compensation insurance
It is relatively easy to purchase workers’ compensation insurance in most instances. Most private insurance companies offer it in states that don’t monopolize it. If you already have an insurance provider for other types of business insurance, start with them to compare workers’ comp rates. You may receive a multi-product discount. Other ways to purchase a workers’ compensation insurance policy include:
- Through a state-funded workers’ compensation insurance program where available.
- Through a competitive system that allows businesses to choose from a state fund (where available) or private insurers.
Workers’ comp insurance cost factors
While workers’ compensation benefits are fairly straightforward, every policy is written for the business specifically in need of the policy. This is because different businesses have different circumstances. The primary factors that play into workers’ compensation rates for employers include:
- The location of the business.
- The industry and types of work performed at the business.
- Amount of the company’s annual payroll.
- The number of employees employed.
- Claims history, based upon how many workers’ compensation claims the company has filed in the past.
- How or where the work comp insurance is purchased.
- Job type class code rate tables: Insurance companies have classification codes for job types. Each one is assigned a rate which correlates to the risk of an employee becoming injured or sick due to performing that job.
How to calculate workers’ compensation cost per employee
There’s a simple formula for estimating base workers’ comp insurance costs.
(Your annual total employee payroll divided by 100) multiplied by (Your business’s class code rate). This will give you an estimate of your company’s base workers’ comp premiums per year.
To estimate per employee, divide the employee’s annual payroll by 100. Multiply that total by the class code rate for that employee’s job. This will give you the estimated base workers’ comp rate for that specific employee.
How to keep workers’ comp insurance costs down
If you’re like most employers, you’ll want to keep your overhead as low as possible. That can involve controlling the cost of your workers’ compensation policy. To control costs and reduce the number of claims your company files, consider doing the following:
- Workplace and employee training. Thoroughly train each employee on the equipment they will be using and document that training. Familiarize them with the details throughout equipment and safety manuals and how to access those manuals if needed.
- Property and equipment maintenance. Perform regular workplace maintenance and inspect all machinery for proper operation. Ensure that all safety devices and features are in good working order.
- Regularly review safety rules and policies. Regularly conduct workforce reviews of your safety policies and regulations. Periodically hold safety classes to keep employees freshly and well-informed.
- Personal protection. Provide personal protective and safety equipment to employees as needed. Make sure employees know where this equipment is kept and how to care for it. Regularly inspect the equipment for wear, tear, and disrepair, and repair or replace as needed.
Granted, there are some factors that you cannot control when it comes to workers’ compensation costs. Focus on the factors you can control, including maintaining high standards of workplace safety. By preventing workplace injury and incidents, you can reduce instances of workers’ compensation claims.
For more information, see our guide to what is workers’ compensation. To learn more about workers’ comp requirements as they apply to you, review your state’s guidelines and/or consult a workers’ comp insurance company.
1 Facts + Statistics: Workplace Safety/Workers Comp, Insurance Information Institute