Hiring new employees or giving raises is exciting for a business, but it's important to understand how payroll changes affect your workers' compensation insurance costs. Let's break down the key factors and how to avoid unpleasant surprises.

Understanding Your Workers' Comp Premium

There are three main components influencing your workers' comp costs:

• Employee Classification Rate: Insurance companies assign your business a class code based on your industry and the specific jobs your employees do. Riskier jobs have higher class code rates.
• Payroll and Remuneration: This isn't just about salaries! Workers' comp considers bonuses, commissions, some benefits, and potentially even the value of company-provided tools or meals when calculating costs.
• Experience Modification Factor (E-mod): Your history of workplace safety matters! A good track record could lower your e-mod, giving you a discount. A history of frequent claims would raise your e-mod, resulting in higher premiums.

The Calculation

Once you know these factors, there's a simple equation to determine your premium:

Rate x (Payroll/100) x e-mod

How Payroll Changes the Equation

More employees or higher wages directly increase the payroll part of the calculation. However, remember that "payroll" for workers' comp isn't just base salary, according to NCCI. Offering more generous bonuses, paid time off, or other benefits can also impact your premiums.

Planning Ahead for Payroll Costs

Nobody wants a big bill at the end of the year! To stay on track, do your best to predict your payroll and the types of compensation you'll be offering at the beginning of your policy period.

As you hire, give raises, or change benefits packages, contact your insurance company to adjust your coverage. This helps avoid a lump sum payment at the end.

Need Help? EverPeak can connect you with an agent who can help you understand workers' comp calculations and ensure your coverage keeps up with your growing business.