How Workers Compensation Premiums Are Calculated
Workers comp pricing is surprisingly simple on paper: payroll, class code, and experience modifier. Here's the formula, a real Phoenix example, and what to check before you accept a quote.
The Basic Formula
Workers comp pricing is surprisingly simple on paper. The general formula goes like this:
Three inputs drive almost everything you pay: how much you pay your people, what kind of work they do, and how your claims history compares to businesses like yours.
1. Payroll
Payroll is the starting point because workers comp is designed to insure people, not property. The more wages you pay, the more exposure the insurer takes on.
2. Classification Codes
Every employee is assigned a class code based on the work they perform. These codes are set by NCCI in most states, or by state-specific bureaus in places like California, New York, and Pennsylvania.
3. Experience Modifier (EMR)
Your EMR compares your company's claims history to similar businesses.
- 1.00 = average
- Below 1.00 = discount
- Above 1.00 = surcharge
4. State Adjustments and Carrier Rates
Even with identical class codes, rates vary by state.
Carriers also file their own rates, so two insurers may quote different premiums for the same business.
5. Here's an Example
A Phoenix business has:
| Input | Value |
|---|---|
| Payroll | $500,000 |
| Class rate | $1.50 |
| EMR | 1.00 |
Premium = $7,500
Workers comp isn't mysterious — it's math, risk, and history.
When getting a workers compensation quote, we recommend making sure that your business is rated with the correct class code, accurate payroll is used, and your correct EMR is used for potential discounts.
If you want to see if you're paying your fair share, contact us today.
Disclaimer
The information provided is for general educational purposes only and does not constitute legal, financial, or insurance advice. Coverage details, limits, and eligibility vary by policy and carrier. No guarantee of accuracy or applicability is made, and this information may not apply to any particular individual, business, or claim. Some images we share are created using AI to help visualize real-world insurance situations. They're designed to educate and engage, not to represent actual claims or clients and they may not apply to you or your business. Always review your specific policy documents and consult your licensed insurance agent for guidance on your situation.
