How are premiums calculated?

Based on payroll, job classifications, industry risk factors, and claims history (experience modification rate).

Workers' compensation premiums are calculated using a combination of several key factors. First, payroll size is assessed because it provides a basis for estimating the scale and scope of potential risk and liability. Larger payrolls typically translate to higher premiums since they reflect a greater number of employees who could potentially make claims.Job classifications play a significant role as well. Each type of job is classified according to the level of risk involved; for instance, occupations in construction or manufacturing would generally carry higher risks compared to office-based jobs.Industry risk factors further refine premium calculations by aligning occupational hazards and safety standards with industry requirements. Each industry has a baseline risk factor that insurers use to assess potential claims losses.Another crucial element is the claims history, often measured through the experience modification rate (EMR). This rate compares a company's past claims history to the average experience in their industry. A good safety record, with fewer claims, can lead to lower premiums as it suggests a safer working environment.In summary, premiums are adjusted based on how a business's specific circumstances align with these four elements.

Imagine a company called 'SafeBuild Constructions,' which operates in the construction industry. To calculate their workers' compensation premiums, the insurer will look at several things: the total payroll, which includes all employees' wages; the specific job roles, like laborers or supervisors, each with different risk classifications; the inherent risks of working in construction, such as working at heights or with heavy machinery; and finally, SafeBuild's previous claim experiences. If SafeBuild has maintained a stellar safety record with few to no accidents over the years, their experience modification rate could positively influence and reduce their premiums.

If you run a business, there are several strategies you can use to manage your workers' compensation costs effectively. Focus on improving workplace safety, which can reduce accidents and claims, thus favorable affecting your experience modification rate. Regularly review job classifications to ensure accuracy in your reporting, as incorrect classifications could lead to overpaying. Keep thorough records of payroll for accurate premium calculations and consult with your insurance provider to understand the factors influencing your premiums and explore discounts available for good practices. Continuous safety training and risk management assessments can also contribute to lower premiums over time.