TAKING CARE OF BUSINESS
The Small-Business Owner's Guide to Workers' Compensation Insurance

Chapter 2: How Workers' Comp Insurance Works
Part 1: Demystifying the Policy: The Inner Workings of Workers' Comp

A. How Are Your Workman's Compensation Insurance Premiums Calculated?

The National Council on Compensation Insurance (NCCI) New browser window icon. and your state's Compensation Insurance Rating Board influence what your Workman's Compensation premiums cost. Both entities calculate rates based on your business's industry classification.

Each type of industry has a certain "loss cost." These estimate the cost of claims associated with businesses similar to yours. Businesses that tend to have more Workers' Compensation Insurance claims end up paying higher rates for coverage; those with fewer claims usually pay less.

A "loss cost" helps estimate the cost of work injury claims associated with your industry.

Sometimes, your employees fall into different classes based on their position in your business. For example, if you own a construction business, most of your workers likely fall under a classification that accounts for the occupational hazards of the job. But your bookkeeper, who is exposed to far less risk, might be classified under a clerical code. (These classification codes are discussed in more detail in the next section.)

These costs and your payroll are plugged into an equation to determine your insurance rate. If your premium is over a certain amount (for New York, it's $5,000 or more a year), your insurance provider may adjust the premium based on your business's specific claims history (rather than the history of businesses that share your classification code). Therefore, a clean claims history may reduce your insurance costs.

Next: What Are Workers' Comp Classification Codes?

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