Hiring new employees isn’t exactly inexpensive. As a business owner, you have to factor in everything from recruitment costs and training expenses to lost productivity during the onboarding process.
Not only this, but you also have to think about insurance, factoring in workers’ comp costs and how it might affect your bottom line.
Ordinarily, many businesses wait for the costs to be attributed before deciphering how it has affected their cash flow and overall profitability, but this isn’t a good idea for long-term financial planning.
As with anything, it’s your job to know exactly where your money is going and how much you’re going to be left with once the employment process is over. This involves actively calculating workers’ comp costs before bringing new team members on board.
In terms of how you can do this, using a workers’ comp estimator is the safest bet to get a clear picture of what the costs will be, but to use it effectively, you’ll need to gather the right information and note all the factors that will influence your policy. Here is everything you’ll need to know:
Job Risk Levels
Some positions are considered higher risk than others, and this will directly impact your premium, depending on the likelihood and potential severity of workplace injuries associated with that role. Insurers assess each job based on industry standards and historical data, so positions involving physical labour, heavy machinery, or hazardous environments typically carry higher premiums, while low-risk roles like an office job or any desk-based positions usually carry lower ones.
Claims History
If your business has prior workers’ compensation claims, this is something else you’ll need to account for. Insurers use past claims to assess your business’s risk level, and from there, they determine whether it’s more or less likely that you’ll be using their services. With this in mind, it’s your job to examine records of past claims – including the type of injury, cost, and any measures taken – and provide an accurate projection to the insurance company you’ve chosen.
Number of Employees
Knowing how many employees you plan to hire will also affect how you calculate workers’ comp insurance. More staff generally means higher premiums, since they’re calculated based on total payroll and the overall exposure to workplace risk. Accurately projecting your workforce size, then, ensures that your workers’ comp costs are realistic and are estimated properly.
Payroll Information
As well as the number of employees, you’ll also need to gather accurate payroll numbers, including wages, salaries, and any bonuses. Because premiums are calculated on the payroll, having precise figures is essential for an accurate calculation and to avoid underestimating what your insurance costs will actually be.
Industry Classification and Business Location
Lastly, you’ll need to identify the primary type of work your business does – helping you determine your industry classification code – and provide the insurance company with the exact location you operate from. By doing this, you’ll be able to ensure your workers’ comp estimate accurately reflects the risk level associated with your industry and the regulatory requirements of your specific state, helping to make it as accurate as possible and prevent any unexpected adjustments down the line.
Calculating Workers’ Comp Insurance Without an Estimator
Above is all the information you need to know to calculate your workers’ comp insurance effectively, but what if you’re not planning to use an estimator? In this case, you’ll need to gather the same information – payroll, job risk levels, claims history, and more – but calculate the premium manually.
This typically involves applying the state’s workers’ compensation rate for each job classification to the corresponding payroll amounts, then adjusting for your business’s experience modification factor, which reflects your claims history.
Sounds time-consuming, right? Well, it is, and it often isn’t wholly precise either. With that in mind, it’s a good idea to use an estimator if you can, or failing that, communicate with your chosen insurance provider and use them to get a broader, more accurate picture of what your premiums will be.
