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So you want to start your own company. How much does Workers Comp cost?

Business owners who have W-2 employees must have workers compensation insurance.  It is the LAW! If a business does not have it while they have employees on payroll, they are subject to a fine of $25 per day PER EMPLOYEE here in Idaho.  Workers comp is insurance to pay for any medical expenses if an employee is hurt while on the job.  There is a simple way to estimate how much your workers compensation premium should be.  It is simply 4 numbers multiplied together.

Payroll x Industry Rate x experience mod x schedule mod = Premium

1. Payroll.  This number is determined by what you pay your W2 employees and is verified by what is shown on your 941 tax form.

2. Industry rate.  Every industry has a different rate and it is determined by how likely it is that an employee gets hurt on the job.  For example, the chance a clerical employee gets injured on the job is much smaller than say a roofer.  The rate is based on a per $100 worth of payroll, so a roofer rate may read like $23.46 per $100 and a clerical employee may be $0.26 per $100.

3.  Experience mod is fancy insurance speak for credit or debit.  To qualify for this, your premium has to be over $2000 a year and you have to be in business for 2 or more years (in Idaho). Companies earn this depending on how safe of a business they run.  If they have very few or zero claims, they will earn a credit. It reads like this: .90.  A .90 would be a 10% credit.  If they have had some claims, they could earn a debit which would read like this: 1.10.  A 1.10 would be a 10% surcharge.

4.  Schedule mod.  This is the X factor in your premium. It is the only one the insurance company has control over.  It reads the same as the experience mod and the insurance company places it on depending on how good of a risk they feel it is. The lowest mod an insurance company can legally put on is a .75 or a 25% credit. If my company likes the risk, they will receive a credit.  It they think it is a higher risk they could put on a debit (1.15 or 15% as an example).

So let’s say you run a butter substitute manufacturing company (I swear it’s in there) and your payroll is $200,000.  You’ve run a safe business and have earned an experience mod of .88, and your insurance company is rewarding you with a .90 schedule mod.  What would your premium be?  The rate for a butter substitute manufacturing company is $2.98 per $100 of payroll.

200,000 x .0298 x .88 x .90 =  $4720.32 a year.


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