Last Updated on October 16, 2026 by Syed Sarim Naqvi
Workers’ compensation insurance pays medical costs and lost wages for employees injured or made ill by their jobs, and in return it generally protects the employer from most lawsuits over those injuries. Premiums are calculated as a class-code rate per $100 of payroll multiplied by your experience modifier, so a small business pays about $45 to $81 a month on average, depending on the source, and higher-risk work costs far more.
Key Takeaways
- The core premium formula is class code rate × (annual payroll ÷ $100) × experience mod
- Insureon reports small businesses pay an average of $45 a month ($542 a year), while The Hartford says 90% of its customers pay around $81 a month
- Average rates run from about $0.57 per $100 of payroll in Texas to $2.32 in Alaska, per NASI figures cited by Pie Insurance, with a national average near $1.31
- An experience mod of 1.0 is the industry average, and above 1.0 you pay a debit while below 1.0 you earn a credit
- In most states, hiring at least one employee means you must carry workers’ comp
What Is Workers’ Compensation Insurance?
Insureon explains that small business owners may buy workers’ compensation even when state law does not require it. An exam-prep study guide describes the idea behind it as a “grand bargain”: workers get guaranteed no-fault benefits, and the employer gets protection from most lawsuits, a principle known as exclusive remedy. Embroker adds that if you employ someone other than just yourself, you are required by law in most states to have coverage.
How Are Premiums Calculated?
| Factor | What It Means |
|---|---|
| Class code | A four-digit code for the type of work, each with a rate per $100 of payroll |
| Payroll | Annual payroll divided by 100, so costs rise with headcount and wages |
| Experience mod | A multiplier reflecting your claims history compared with similar businesses |
Insureon gives the formula as classification rate times experience modification rate times annual payroll divided by $100. Group Management shows what rate does: at $1.50 per $100 of payroll, an employee earning $50,000 costs $750, while at $15 per $100 the same salary costs $7,500. Pie Insurance notes class code 8810 (clerical) carries a much lower rate than class code 5403 (carpentry).
How Much Does Workers’ Comp Cost?
Figures vary. Insureon reports an average of $45 a month, or $542 a year, based on median policies sold to its small business customers, and says 23% pay less than $30 a month while 40% pay between $30 and $60. The Hartford says 90% of its customers pay around $81 a month. Hourly cites a national average of $1.31 per $100 of payroll based on Oregon Department of Consumer and Business Services data, and Pie Insurance gives a state range of $0.57 in Texas to $2.32 in Alaska. As an illustration only, a business with $300,000 of annual payroll at a blended $1.31 rate would pay about $3,930 before any experience mod.
- Industry risk: The Hartford says higher-risk jobs generally cost more
- State: Group Management notes some states use their own class codes and rating systems instead of NCCI
- Bundling: The Hartford says bundling with a business owner’s policy could save money
What Is the Experience Modification Factor?
Pie Insurance explains that an experience mod of 1.0 is the industry average, a mod above 1.0 is a debit mod, and below 1.0 is a credit mod, meaning your losses are lower than average, and that safety practices can influence your mod and rates considerably. Embroker adds that most states use the National Council on Compensation Insurance (NCCI) to report and calculate experience ratings, while several, including California and monopolistic states, calculate their own.
Who Needs It?
Hourly says that if you employ at least one person, you are required to have workers’ comp for them, while Embroker softens this to most states. Rules for sole proprietors, contractors and small employers differ by state, so check your state’s workers’ compensation agency before deciding to go without cover.
How Does This Connect to the Rest of Specialty Insurance?
Workers’ comp is the employee-injury piece that general liability leaves out, as shown in Food Truck Insurance Explained and Tattoo Shop Insurance Explained. For income lost when a business has to pause, see Business Interruption Insurance Explained, and for liability tied to professional mistakes, Professional Liability (E&O) Insurance Explained. For the dangerous-job end of the spectrum, read Stunt Performer Insurance Explained.
FAQ
What does workers’ compensation insurance cover?
Medical costs and lost wages for employees injured or made ill by their jobs, and it generally protects employers from most related lawsuits.
How is workers’ comp premium calculated?
Class code rate multiplied by annual payroll divided by $100, then multiplied by the experience modifier.
How much does workers’ comp cost for a small business?
Reported averages are about $45 a month (Insureon) to $81 a month (The Hartford), with large differences by industry and state.
What is a class code?
A four-digit code describing the type of work, each with a rate per $100 of payroll.
What is an experience mod?
A multiplier based on your claims history, where 1.0 is the industry average.
Is workers’ comp required?
In most states, yes, once you employ at least one person, though exceptions vary by state.
How can I lower my premium?
Improve workplace safety to reduce claims, make sure employees are correctly classified, and consider bundling with a business owner’s policy.
Glossary
- Class Code: a code that describes the type of work and sets its rate per $100 of payroll.
- Experience Modification Rate (Mod): a multiplier comparing your claims history with industry averages.
- Debit Mod: a mod above 1.0 that raises your premium.
- Credit Mod: a mod below 1.0 that lowers your premium.
- NCCI: the National Council on Compensation Insurance, a rating and data bureau used by many states.
- Exclusive Remedy: the rule that workers’ comp is the employee’s main remedy, limiting lawsuits against the employer.
Sources
- Insureon: Workers’ Compensation Insurance Cost (average cost, formula, customer distribution)
- Pie Insurance: Workers’ Compensation Rate by Class Code (class codes, experience mod, state range)
- Pie Insurance: How Much Does Workers’ Comp Cost? (rate range, premium formula)
- Group Management: How Is Workers’ Compensation Calculated? (rate example, state code systems)
- Hourly: How Much Does Workers’ Comp Insurance Cost? (national average rate, requirement)
- Embroker: Workers’ Compensation Calculator (requirement in most states, experience mod states)
- The Hartford: Workers’ Compensation Rates (customer premium figure, rating factors)
- InsuranceXDate: Workers Compensation Study Guide (grand bargain, exclusive remedy)
Related reading: Delivery and Rideshare Driver Insurance Explained · Landlord Insurance Explained · Key Person Insurance Explained
Published October 2026. Prices, class-code rates and state rules vary and change often; always confirm requirements with your state workers’ compensation agency, and refresh this article periodically.
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