The United States Bureau of Labor Statistics says the average employer pays 45 cents per hour worked for workers’ compensation. However, the coverage is regulated differently across the US, and that causes variations in workers’ compensation insurance costs by state. Rates can be as low as 7 cents per $100 of payroll or exceed $80 per $100 of payroll.
Cheapest and Most Expensive Workers’ Compensation Rates
The map above shows the most recent data compiled by the National Academy of Social Insurance. Its report lists Washington, D.C., as having the lowest average workers’ compensation rates at 51 cents per $100 of payroll and Alaska as the highest at $2.27 per $100 of payroll.
5 Most Expensive Workers’ Compensation Rates By State
- Alaska: $2.27
- Montana: $2.01
- California: $1.83
- South Carolina: $1.71
- Wyoming: $1.70
5 Least Expensive Workers’ Compensation Rates By State
- District of Columbia: 51 cents
- Texas: 54 cents
- Ohio: 67 cents
- Massachusetts: 73 cents
- Arkansas and Michigan (tied): 74 cents
Average premiums are listed as cost per $100 of payroll.
Factors Impacting States’ Workers’ Compensation Costs
There are many reasons for the different workers’ compensation rates by state. Probably the most significant factor is that each state governs workers’ compensation insurance differently. For instance, some cover nearly every employee, such as Wisconsin, while others exclude large numbers of workers from coverage. One state―Texas―only requires employers to carry workers’ comp when they have government contractors.
Each state also regulates how much an injured worker receives in benefits. Alaska covers 80% of a workers’ wages if they suffer an injury that temporarily leaves them disabled. Most other states cap wage replacement at 66%. How long the benefits last impacts costs too. Massachusetts, for example, stops permanent disability payments after 156 weeks, whereas Wisconsin covers temporary and permanent disability for 1,000 weeks.
A state’s top industries can also affect the overall workers’ compensation costs, especially when the industries have several high-risk jobs. Every type of job is assigned a class code based on the risk of injury by either the National Council of Compensation Insurers (NCCI) or the state’s workers’ compensation rating board. Each class code is then given a base rate. Riskier jobs tend to have a higher base rate than less hazardous jobs.
Compare the District of Columbia’s top industry, the federal government, to Alaska’s top industry, oil and gas. While not all the oil and gas workers have risky jobs, a number of them do, and that increases the likelihood that insurers will have to cover injuries. This often results in higher premiums.
How Workers’ Compensation Rates Are Calculated
Class codes and state rates are only part of figuring out how much workers’ compensation insurance costs. The other two parts are your payroll and claims history. These three numbers make up the basic workers’ compensation formula.
Your experience modification rate (EMR) is a number, created by the NCCI or state worker’s compensation ratings bureaus, that represents your claims history. Depending on your state, this number is multiplied by either your business’ or your individual employees’ class codes to determine your workers’ compensation costs. Improving your EMR is just one way to lower your workers’ compensation premiums. Other tips include hiring the right people, getting quotes from multiple carriers, and asking for discounts.
The bottom line when shopping for workers’ compensation insurance rates by state or among multiple states is to understand that there are many factors affecting cost. Every state, company, and small business plays a role in defining the final rate. No two companies will have the same premium costs.