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How much is workman comp insurance for a small business?

PEO, Payroll, Insurance, and Workers Compensation Brokers

How much is workman comp insurance for a small business?

Workers compensation insurance, also known as work comp or workers comp, is a form of insurance for businesses to cover injury related expenses on the job for employees as well as wage replacement for injured workers while they recover.  Although this is an over simplified description of what workers compensation is, it should be a good start for this article to help you understand, not only how important it is, but how much workers compensation will cost.  

Understanding the basics of what workers compensation is helps to understand how the work comp premium is calculated.  Workers’ compensation premium is based on the amount of insurance needed to cover the risk.  In other words, based on how much the worker makes and what that worker does determines how much workers’ compensation insurance you will have to pay.  A high risk and highly paid employee with require more insurance to cover the risk than an employee who is a clerical worker spending most of their time at a desk.  

This part varies a little bit state by state.  For the scope of this article, we will talk about Florida workers’ compensation specifically.  Job functions are grouped by risk or liability and given a “classification code”.   Each classification code is assigned a rate, also known as manual rate.  This rate is the starting point to calculate how much work comp will cost you.  Premium calculations are tied directly to payroll amounts as a percentage of payroll.  Another way to think of this would be a rate per $100 of payroll.  

Example:

In 2020, the Florida workers’ compensation manual rate for a clerical worker (which is code FL8810) is $0.17.  To calculate the premium, you would take the total annual payroll associated with this code (this could mean multiple clerical employees payroll combined into one amount) and divide it by 100.

Step 1: $50,000 annual payroll / 100 = $500.

Step 2: Multiple the amount in step 1 times the manual rate: 500 x .17 = $85.00.

In this case, you would owe $85 for workers compensation.

The above example over simplifies the process to relay the basics.  In reality there are a few more factors that will determine how much workers compensation premium you will pay.  A few factors that could influence how your premium is impacted include:

    • How safe has your company been over time and do you have a safety program?
    • What experience do you and your staff have in your industry?
    • What safety protocols do you have in place at your job site?
    • Do you have a drug free work place program in place?
    • How much will your employees be earning by workers compensation code?

These factors (plus others) combine to give you an experience rating.  This rating can modify the manual rate to either increase it or decrease it.  You can lower the manual rate by operating a safe work environment with no or little losses.  Alternatively, if you have not had a safe environment and have had several claims in the past, you might have to use a rate that is more than the manual rate.

Continuing the example above:

Step 1: $50,000 annual payroll / 100 = $500.

Step 2: Adjust the manual rate.  In this case using a decrease from good history including no losses, a reduction by 10%:  .17 – 10% = .153

Step 3: Multiple the amount in step one times the adjusted manual rate: $500 x .153 = $76.50.

Hopefully, using the information above, you can begin to understand how workers’ compensation insurance is calculated to help you estimate how much it will cost your company. Determining the proper classification code and calculating the discounts your company has earned can be a little difficult on your own.  It is best to use an experienced and licensed insurance agent specializing in workers’ compensation to ensure that not only all of the information is accurate but, you are getting the best rate you can qualify for.

As you can see, workers compensation insurance can get very expensive depending on the multiple risk factors for your industry. Sometimes, there is an option to save even more money. Using the principles above for generating discounts based on safe working environments, risk training, experienced loss prevention specialist, volume payroll discounts, and more, PEO’s can save employers on workers’ compensation insurance. Not only can a small business owner save money on their workers compensation using a PEO but, can also get job site and work place safety training to ensure their continued discounts and welfare of their employees.

Pro Tip:  We chose the title of this article based on some Google results.  However, no one says “workman comp”.  The correct term to use is one of the following: workers’ compensation, workers’ comp, or just work comp.

Whether you are looking for your own work comp policy, wanting to leverage the power of a PEO, or would just like to learn more about workers’ compensation, please give us a call today!

941-896-4880 or 855-899-1589

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