One of the most basic costs of doing business, whether you’re a large, medium, or small-size company, is insuring your employees against injury while they are on the job. Most businesses in the U.S. that have employees are required to have a policy for workers’ compensation.
How are Workers’ Comp Premiums Calculated?
Worker’s compensation insurance premiums are calculated according to how employees are classified (regarding the specific work they perform) and the rate assigned to each employee classification. The premium rate itself is expressed in dollars and cents per $100 of payroll for each class code. In Pennsylvania, the Pennsylvania Compensation Rating Bureau (PCRB) determines the classification rate and experience modification factor (MOD).
There are three factors that go into setting workers’ compensation premiums:
- Size of the employer’s payroll
- Employee job classifications
- Company’s claims experience
How Does Your Payroll Affect Your Workers’ Compensation Rate?
The basis for an employer’s workers’ comp insurance premium is your payroll. As stated earlier, for each $100 dollars of your payroll, there is a specific rate, which is determined by the classification codes of your employees. For the purpose of workers’ comp insurance, payroll is the total gross payroll for all employees. This includes all salaries and wages, bonuses, commissions, and draws against commissions, plus holiday, vacation, and sick pay. Tips, uniform allowances, employer-paid perks, and employer payments to retirement or cafeteria plans are excluded from this amount. Meals and lodging that are received as part of an employee’s regular pay must be included, but reimbursed expenses are excluded.
How Does Employer Classification Affect Your Insurance Rate?
Businesses are separated into groups according to the type of work they perform. The classification system identifies which type of work presents more risk to the employees performs these tasks. As mentioned previously, for each classification of employee, the business owner must pay a certain amount for workers’ compensation insurance based on every $100 dollars of payroll.
How Does Your Experience Modification Factor Affect Your Premium?
Your experience modifier, or MOD, is a numeric representation of your company’s claim experience. MODs are based on how your business compares to others in your industry with similarly classified employees. An average MOD is set at 1.00. Employers with fewer and less severe accidents than average have a MOD of less than 1.00.
Who Needs to Be Covered?
Employers in Pennsylvania must provide workers’ compensation coverage for all of their employees, including seasonal, part-time workers or even family members. Non-profit corporations, unincorporated businesses and even employers with only one employee must comply with Pennsylvania requirements. Sole proprietors and general partners are automatically excluded form coverage unless they specifically request coverage. If your business operates in multiple states, or employees travel across state lines to work, you may need to modify your policy to guarantee coverage in the event of a claim.
Let Gallen Insurance take the guess work out of workers’ compensation insurance. We represent many carriers with competitive pricing. Contact Gallen Insurance today to see if you are eligible for any additional credits on your current policies.
Gallen Insurance provides Workers’ Compensation Insurance solutions to residents of Berks County and the Greater Reading Area.