Sep 5, 2025
Workers Compensation Cost: Founder's Guide to Project and Control
Upeka Bee
With inflation, rising healthcare costs, and wage growth, founders are seeing their workers' comp premiums climb year after year. While external economic factors certainly play a role, your workers' comp premium is not a fixed expense. It is a direct reflection of your company's risk, most of which is in your control.
Understanding how your premium is calculated is the first step toward projecting your costs. Implementing smart, proactive strategies is how you take control of them.
This guide will demystify the numbers behind your premium. It will provide a playbook for turning this unpredictable expense of workers' comp insurance into a manageable one.
Decoding Your Premium: Three Numbers That Matter
To project your costs, you need to understand the basic formula insurers use. Think of it as a simple multiplication problem with three key variables, each of which tells a story about your business.
1. Your total payroll
Your premium is calculated based on every $100 of your gross payroll. As your team grows or you give raises, your total payroll increases, and your premium will rise accordingly. This is the part of the formula most directly tied to inflation and wage growth.
2. Industry classification codes (class codes)
Insurers assess risk by job function. Every role in your company is assigned a ‘class code’ by a rating bureau like the NCCI. For instance, an administrative assistant (a low-risk code) will have a much lower rate than a machine operator (high-risk code). Misclassifying an employee in a higher-risk category can lead to significant overpayment.
3. Your experience modification rate (EMR)
You can influence this number most strongly. The EMR compares your company’s past claims history (typically a 3-year period) to the average claims history of other companies in the same industry.
Let’s consider that an EMR of 1.00 is the industry average. If your claims history is better than average, your EMR will be below 1.00 (such as 0.85), earning you a discount on your premium. If it's worse, your EMR will be above 1.00, resulting in a costly surcharge.
5 Ways to Control Your Premiums
Controlling your workers' comp costs is a long-term goal that you can achieve with strategies that lower your risk profile. Consider the following:
1. Build a genuine safety culture
This is a preventive step that reduces claims in the first place. Implement a written safety program, conduct regular and documented training sessions, and create a safety committee with employees from different functions. Create safety as a shared value to reduce incidents.
2. Implement a return-to-work program
The cost of a claim isn't just the initial medical expense. It’s also the ongoing wage replacement for an employee out of work. For a desk worker, a return-to-work program can be effective.
It could involve providing modified duties, offering ergonomic equipment, or allowing a flexible schedule to accommodate recovery. This brings your team members back into their role sooner, closes claims faster, and shows a strong commitment to their recovery.
3. Audit your class codes annually
Don't let your insurance carrier dictate your classifications without a review. Roles can change as your business grows. For example, an employee classified as ‘outside sales’ with a higher risk due to travel might now be in a remote, ‘inside sales’ role with a much lower risk profile.
An annual review with your insurance broker ensures you aren’t overpaying for outdated job-function classifications. This can potentially save you thousands.
4. Actively manage claims
Don't just file the claim and forget it. A proactive approach would mean you report the incident as early as possible and stay in touch with the employee. Regularly check in with your insurance carrier’s claims adjuster for updates. Active involvement ensures the employee feels valued and the claim is managed efficiently.
5. Partner with the right insurance broker
A great broker is a strategic partner in risk management. They should provide resources relevant to your business, like guides for setting up an ergonomics program or templates for safety policies. They should help you analyze your claims history to identify trends and advocate on your behalf with the insurance carrier during your annual audit.
Proactive Control With DianaHR
Lowering your workers’ comp premiums starts with the right HR systems and the right experts. DianaHR brings more than just administrative support. Our HR professionals go beyond payroll management to help you build a strong compliance foundation.
They develop clear job descriptions and organizational charts for accurate classification, establish formal safety policies, and create return-to-work programs that minimize risk.
The result? Lower premiums and stronger protection. Talk to the experts at DianaHR today.
FAQs
1. How to control growing premiums on the wages of workers?
While you can't control the wage inflation that impacts payroll, you can control your experience modification rate (EMR). It is a multiplier applied to your premium. You can do this by reducing the frequency and severity of claims. Focus on building a safety program to prevent injuries from happening in the first place.
2. What is the best compensation strategy for small businesses?
The best compensation strategy for small businesses is a total rewards approach that looks beyond just salary. It includes competitive wages and benefits like health insurance and retirement plans, flexible work arrangements, and a supportive culture.
3. How to project premiums on rising workers' wages?
To project your premiums, start with the formula: Projected Annual Payroll / $100 x Classification Rate x Experience Modification Rate (EMR).
First, forecast your gross payroll for the upcoming year. Next, work with your insurance broker to confirm the correct classification code rates for each job function. Finally, apply your current EMR. This calculation will give you a data-backed estimate of your next year's premium, allowing you to budget more prudently.
With inflation, rising healthcare costs, and wage growth, founders are seeing their workers' comp premiums climb year after year. While external economic factors certainly play a role, your workers' comp premium is not a fixed expense. It is a direct reflection of your company's risk, most of which is in your control.
Understanding how your premium is calculated is the first step toward projecting your costs. Implementing smart, proactive strategies is how you take control of them.
This guide will demystify the numbers behind your premium. It will provide a playbook for turning this unpredictable expense of workers' comp insurance into a manageable one.
Decoding Your Premium: Three Numbers That Matter
To project your costs, you need to understand the basic formula insurers use. Think of it as a simple multiplication problem with three key variables, each of which tells a story about your business.
1. Your total payroll
Your premium is calculated based on every $100 of your gross payroll. As your team grows or you give raises, your total payroll increases, and your premium will rise accordingly. This is the part of the formula most directly tied to inflation and wage growth.
2. Industry classification codes (class codes)
Insurers assess risk by job function. Every role in your company is assigned a ‘class code’ by a rating bureau like the NCCI. For instance, an administrative assistant (a low-risk code) will have a much lower rate than a machine operator (high-risk code). Misclassifying an employee in a higher-risk category can lead to significant overpayment.
3. Your experience modification rate (EMR)
You can influence this number most strongly. The EMR compares your company’s past claims history (typically a 3-year period) to the average claims history of other companies in the same industry.
Let’s consider that an EMR of 1.00 is the industry average. If your claims history is better than average, your EMR will be below 1.00 (such as 0.85), earning you a discount on your premium. If it's worse, your EMR will be above 1.00, resulting in a costly surcharge.
5 Ways to Control Your Premiums
Controlling your workers' comp costs is a long-term goal that you can achieve with strategies that lower your risk profile. Consider the following:
1. Build a genuine safety culture
This is a preventive step that reduces claims in the first place. Implement a written safety program, conduct regular and documented training sessions, and create a safety committee with employees from different functions. Create safety as a shared value to reduce incidents.
2. Implement a return-to-work program
The cost of a claim isn't just the initial medical expense. It’s also the ongoing wage replacement for an employee out of work. For a desk worker, a return-to-work program can be effective.
It could involve providing modified duties, offering ergonomic equipment, or allowing a flexible schedule to accommodate recovery. This brings your team members back into their role sooner, closes claims faster, and shows a strong commitment to their recovery.
3. Audit your class codes annually
Don't let your insurance carrier dictate your classifications without a review. Roles can change as your business grows. For example, an employee classified as ‘outside sales’ with a higher risk due to travel might now be in a remote, ‘inside sales’ role with a much lower risk profile.
An annual review with your insurance broker ensures you aren’t overpaying for outdated job-function classifications. This can potentially save you thousands.
4. Actively manage claims
Don't just file the claim and forget it. A proactive approach would mean you report the incident as early as possible and stay in touch with the employee. Regularly check in with your insurance carrier’s claims adjuster for updates. Active involvement ensures the employee feels valued and the claim is managed efficiently.
5. Partner with the right insurance broker
A great broker is a strategic partner in risk management. They should provide resources relevant to your business, like guides for setting up an ergonomics program or templates for safety policies. They should help you analyze your claims history to identify trends and advocate on your behalf with the insurance carrier during your annual audit.
Proactive Control With DianaHR
Lowering your workers’ comp premiums starts with the right HR systems and the right experts. DianaHR brings more than just administrative support. Our HR professionals go beyond payroll management to help you build a strong compliance foundation.
They develop clear job descriptions and organizational charts for accurate classification, establish formal safety policies, and create return-to-work programs that minimize risk.
The result? Lower premiums and stronger protection. Talk to the experts at DianaHR today.
FAQs
1. How to control growing premiums on the wages of workers?
While you can't control the wage inflation that impacts payroll, you can control your experience modification rate (EMR). It is a multiplier applied to your premium. You can do this by reducing the frequency and severity of claims. Focus on building a safety program to prevent injuries from happening in the first place.
2. What is the best compensation strategy for small businesses?
The best compensation strategy for small businesses is a total rewards approach that looks beyond just salary. It includes competitive wages and benefits like health insurance and retirement plans, flexible work arrangements, and a supportive culture.
3. How to project premiums on rising workers' wages?
To project your premiums, start with the formula: Projected Annual Payroll / $100 x Classification Rate x Experience Modification Rate (EMR).
First, forecast your gross payroll for the upcoming year. Next, work with your insurance broker to confirm the correct classification code rates for each job function. Finally, apply your current EMR. This calculation will give you a data-backed estimate of your next year's premium, allowing you to budget more prudently.
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