How Much Does Workers’ Comp Cost? The Formula, Class Codes, Industry Differences and a Calculator
Ask ten small business owners what they pay for workers’ comp and you will get ten very different answers. A two-person bookkeeping office and a two-person roofing crew are both “small businesses,” but they are not buying the same product at the same price. A single national average tells you almost nothing about your own bill.
What you can learn is how the price is built. This guide puts everything in one place: the formula insurers use, each input explained, how much industry changes the result, the fees people forget, and a calculator to run your own numbers. Once you see the parts, you can estimate your range, spot a quote that looks wrong and know which questions to ask an agent.
On this page: The formula · Calculator · Class codes · Payroll · The rate · Experience mod · Fees and minimums · Cost by industry · Costs people forget · Questions
The formula in one line
In most states the premium comes from the same short calculation:
(Payroll in each class ÷ 100) × rate for that class × experience modification = manual premium, then adjusted by credits, discounts, fixed fees and the carrier’s minimum premium.
State regulators describe it in almost exactly those terms. Tennessee’s Bureau of Workers’ Compensation explains that each class code has a set premium rate per $100 of payroll and that riskier work, such as roofing, carries a higher rate. The New York State Insurance Fund (NYSIF) lists its own steps: it multiplies the manual rate by your estimated annual payroll and divides by 100, applies your experience rating, and then adds an expense constant.
Two exceptions. Washington charges by the hour worked instead of by payroll, and employers withhold half of the medical aid premium from workers’ pay under RCW 51.16.140. Washington L&I shows its own example: an experience factor of 0.9789 × ($0.0221 + $0.0160 + $0.0003) + $0.1120 = $0.1496 per hour worked. And in the four monopolistic states (North Dakota, Ohio, Washington and Wyoming) coverage is sold only through a state fund, so private-market rates do not apply. See monopolistic states vs. private insurance.
Estimate your premium
Enter the annual payroll and the rate per $100 for each class code in your business. If you do not have a rate yet, use one from a recent quote or ask an agent for an indicative rate for your codes. Leave the experience modification at 1.00 if your business is new.
How your EMR changes the same policy
Same payroll and rates, different claims history. A lower EMR (fewer or smaller past claims) lowers the premium; a higher one raises it.
The calculator gives a ballpark, not a binding price. The sections below explain each input, so you can check both its output and any quote you receive. There is also a standalone version of the calculator you can bookmark.
Input 1: Your class codes
This is the biggest factor by far. A class code is a number that describes a type of work, and each code has its own rate. In most states the codes come from NCCI, the National Council on Compensation Insurance. New York’s rating board sets loss costs for more than 600 classifications. Washington’s Department of Labor and Industries uses more than 300 risk classes and notes that employers in hazardous industries such as logging generally pay more than retail stores.
Three things about class codes trip up small businesses:
- The code follows the business, not the job title. NYSIF assigns each business a governing code based on what the company does, not the separate jobs inside it.
- Your governing class matters. The code with the most payroll becomes the governing class. Tennessee uses it to decide whether a business is a construction provider at all.
- Similar codes can have very different rates. Tennessee’s Bureau warns that some jobs have similar codes in different categories, so the details of the actual work matter. A wrong code is the most common cause of an overpriced policy.
Some staff can be split out. Purely clerical employees who stay in the office often qualify for a separate, much cheaper code. Someone who splits time between the office and job sites usually does not, unless the rules allow it and the payroll is tracked separately. You cannot pick your own code; it is set by the classification rules. You can make sure the description your insurer has is accurate, and challenge a code that does not fit.
Input 2: Payroll
Premium is charged per $100 of payroll in each class. “Payroll” means more than base wages: NYSIF’s list of reportable pay includes commissions, bonuses, most overtime pay, holiday and vacation pay, and the value of meals or lodging given as part of pay. Rules on overtime and owner pay differ by state, so ask your agent how your state treats them. If you only count hourly wages, your estimate will come in low.
Use the payroll you expect for the policy year, including planned hires. The insurer starts from your estimate and then audits actual payroll after the policy ends, billing or refunding the difference. Keep payroll records by class code: if you cannot show how much of a worker’s pay was clerical and how much was field work, the auditor will often put all of it in the more expensive code.
Subcontractors count too. If you hire subcontractors without their own coverage, many insurers add those payments to your payroll at audit, because in many states you are liable for their workers. Collecting certificates of insurance protects you from both the liability and the audit charge.
Input 3: The rate
The rate is the price per $100 of payroll for a class code. In most states it starts from loss data filed by a rating organization and approved by the state. Wisconsin’s Department of Workforce Development, for example, notes that rates there are approved by the Office of the Commissioner of Insurance. In New York, the rating board’s loss costs must be approved by the Department of Financial Services, and each carrier applies its own loss cost multiplier on top, which it also files for approval.
That is why the “rate” for the same code can differ between two carriers in the same state, and why the same type of business can pay a different rate across a state line. Our 50-state comparison shows how the rules differ.
Input 4: The experience modification (EMR)
Once a business is large enough and has enough history, its rate is adjusted by an experience modification factor, often called the “mod.” It compares your actual claims with the losses expected for businesses your size in your classes. NYSIF says employers with more than 18 months of coverage history are generally experience rated. Small and new businesses usually have no mod yet and are rated at 1.00.
| Mod | What it means | Effect on a $10,000 manual premium |
|---|---|---|
| 0.75 | Losses well below average | $7,500 |
| 0.90 | Somewhat below average | $9,000 |
| 1.00 | Average, or not yet rated | $10,000 |
| 1.25 | Losses above average | $12,500 |
| 1.50 | Losses far above average | $15,000 |
Frequent small claims tend to hurt a mod more than one larger claim, which is why prompt reporting and return-to-work programs matter. Our EMR guide explains how the factor builds up over several years.
After the manual premium: credits, fees and minimums
The insurer then applies adjustments, which vary by state and carrier:
- Schedule credits or debits for things like safety programs or unusual hazards.
- Premium discounts for larger policies.
- State programs, such as credits for certified safety or drug-free workplace programs. Georgia, for example, gives certified drug-free workplaces a 7.5% premium reduction (see our Georgia guide).
- An expense constant, a flat fee charged on every policy regardless of size.
- A minimum premium. NYSIF defines it as the lowest premium for which an annual policy may be written. Very small payrolls often calculate below it, so a business with one part-time employee should expect to pay the floor, not a few dollars.
Putting it together: one worked example
The rates below are hypothetical and chosen only to show the math. Your real rates come from your state’s rating bureau and your insurer.
A small HVAC company projects $260,000 in payroll: $200,000 for technicians and $60,000 for an office manager and a dispatcher. It has a mod of 0.92.
| Step | Correct coding | Office staff coded as technicians |
|---|---|---|
| Technicians ($200,000 at $3.20) | $6,400 | $6,400 |
| Office ($60,000) | $132 at $0.22 | $1,920 at $3.20 |
| Manual premium | $6,532 | $8,320 |
| × mod 0.92 | $6,009 | $7,654 |
| + $200 expense constant | $6,209 | $7,854 |
One classification question is worth more than $1,600 a year here, more than most discounts a small business can get. That is why the class code is the first thing to check on any quote.
How much industry changes the price
Industry is the single biggest reason one business pays far more than another. But tables of “average monthly cost by industry” are less useful than they look: they usually come from one insurer’s customers, mix many states together and hide huge differences inside each industry. A roofer and a project manager can both sit under “construction.”
The table below is a qualitative guide, not a price list. It shows where each broad group tends to land, what drives its cost and the classification mistake that most often distorts a quote.
| Industry group | Typical rate tier | What drives cost | Common classification trap |
|---|---|---|---|
| Offices, IT, accounting, real estate | Low | Desk work, few severe injuries | Staff who also do site visits or installs |
| Retail stores | Low to moderate | Lifting, slips, stocking | Delivery drivers lumped in with clerks |
| Restaurants and food service | Moderate | Burns, cuts, slips | Catering trips and delivery work |
| Cleaning and janitorial | Moderate | Chemicals, lifting, ladders | Window work at height |
| Landscaping and lawn care | Moderate to high | Equipment, heat, chainsaws | Tree trimming added to mowing routes |
| Construction trades | High | Falls, heavy equipment | Office staff coded as field workers |
| Roofing | Among the highest | Falls from height | Roofing done under a general contractor code |
| Trucking | High | Crashes, loading injuries | Owner-operators treated as contractors without checking the facts |
To see the size of the gap, take three businesses with the same $200,000 payroll and a neutral claims record (hypothetical rates):
| Business | Hypothetical rate per $100 | Estimated premium |
|---|---|---|
| Accounting firm, all desk staff | $0.25 | $500, likely below the minimum premium |
| Landscaping company ($160,000 crew, $40,000 office) | $4.00 crew / $0.25 office | $6,500 |
| Roofing contractor, five roofers | $12.00 | $24,000 |
Same payroll, a price difference of roughly fifty times. Within one state, the gap between the safest and riskiest classes is wider than any discount or carrier choice can close. For detail by trade, see our guides for construction, roofing, landscaping, trucking, restaurants and IT and software companies.
Riskier industries also trigger coverage earlier
- In Missouri, most employers need coverage at 5 or more employees, but construction employers need it with just 1 (RSMo 287.030).
- In Tennessee, construction employers need coverage with 1 or more employees, counting part-time, seasonal and family workers, and construction business owners must cover themselves unless they get an exemption.
- If you hire subcontractors, an uninsured sub’s workers can end up on your audit, a common surprise bill for general contractors.
If your business spans more than one industry
Many small companies grow into a mix: a restaurant that starts catering, a cleaner that adds window washing, an electrician who adds low-voltage work. Each type of work may need its own classification, and payroll has to be tracked separately to get the lower rate for the lower-risk part. Before renewal, check: do any employees do two very different kinds of work in the same week? Has your service list changed since the policy was written? Does your payroll system tag hours by type of work? If not, an auditor may put all of it in the higher class.
Why online averages mislead you
Published “average cost” figures blend offices, restaurants, contractors and trucking firms, and they mix states with very different rules. In Texas, private employers can choose not to carry coverage at all, so the businesses that do buy it there are a self-selected group. A blended average can be off by several times in either direction for your business. Treat any average as trivia and build your own estimate from your own payroll and codes.
Costs people forget to budget
- Audit adjustments. Your premium starts as an estimate. If payroll grows during the year, the audit sends a bill for the difference.
- State charges. In New York, an assessment charge funds the Workers’ Compensation Board and special funds, and there are separate catastrophe and terrorism charges.
- Installment fees. Some payment plans add a small service charge to each bill.
- The cost of going without. Tennessee may assess a penalty equal to 1.5 times an employer’s total estimated annual premium for failing to insure or for misclassifying workers. Other states are tougher. See penalties by state.
Questions owners ask about their premium
Why does my quote differ from my estimate?
Your rate input may not match the carrier’s rate, the carrier may apply credits or surcharges, and fixed charges and assessments vary. A gap of a few percent is normal. A gap of several times usually means a different class code.
Why did my bill go up after the audit?
Usually because actual payroll was higher than estimated, payroll moved to a more expensive class, or payments to uninsured subcontractors were added.
Do owners’ wages count?
Only if the owners are covered, and the rules vary by state and entity type. Many states let sole proprietors, partners or some officers exclude themselves. See sole proprietors and workers’ comp.
How to get a real number for your business
- List every employee and write one sentence about what they actually do all day.
- Split your projected payroll by type of work, including overtime and bonuses.
- Run the figures through the calculator above to get a ballpark.
- Gather your prior policies and loss runs, your subcontractors’ certificates of insurance and a description of any safety or return-to-work programs.
- Ask two or more agents or carriers for quotes, and ask each one which class codes they used. Compare the codes first and the prices second: a cheap quote with the wrong code becomes an expensive audit.
Next steps: how to get a cheaper quote without paying for it later and how to lower your premium legally.
Sources
- Tennessee Bureau of Workers’ Compensation, how premium rates are set
- New York State Insurance Fund, what affects your premium
- Washington L&I, calculating premium rates
- RCW 51.16.140, Washington premiums and deductions
- RCW 51.14.010, Washington state fund requirement
- Wisconsin DWD, insurance requirements and rate approval
- Missouri Revised Statutes 287.030
- Tennessee Bureau of Workers’ Compensation, construction requirements
- Tennessee Bureau of Workers’ Compensation, Uninsured Employers Fund and penalties
Sources last checked on October 2, 2026. This guide combines our earlier articles on cost, cost by industry, premium estimation and class codes into one page (October 18, 2026).