Workers' comp rates are calculated based on a combination of the employer’s classification code, the state’s loss cost, and the employer’s experience modification factor (E‑Mod). The formula multiplies the loss cost by the class rate and adjusts it with the E‑Mod and any state-specific premium taxes.

Key Components of a Workers' Comp Premium

• Class Code (or class rate) – A numeric code that groups similar job duties; set by the state rating bureau (e.g., NCCI in most states).
• Loss Cost – The state’s estimate of the average cost of claims per $100 of payroll for each class. It is updated annually by the rating bureau.
• Experience Modification Factor (E‑Mod) – A rating that reflects your company’s past claim history compared with the industry average. An E‑Mod of 1.00 means average; below 1.00 rewards good safety.
• Premium Taxes & Assessments – State‑imposed taxes, assessments, and fees that are added to the base premium.
• Payroll – The total covered payroll for each class, reported to the insurer.

Step‑by‑Step Calculation

1. Identify the class code for each job function in your workforce.
2. Obtain the current loss cost for each class from your broker (rates vary by state and class code — verify current loss costs with your broker).
3. Calculate the basic premium: (Loss Cost ÷ 100) × Payroll.
4. Apply the E‑Mod: Basic Premium × E‑Mod.
5. Add state premium taxes, assessments, and any optional coverages.
6. The result is the annual workers' comp premium you will pay.

Factors That Can Raise or Lower Your Rate

• Safety Programs – Documented safety training and injury‑prevention programs can lower the E‑Mod over time.
• Payroll Accuracy – Over‑reporting payroll inflates premiums; under‑reporting can lead to penalties.
• Claim Frequency & Severity – More frequent or costly claims increase the E‑Mod.
• State Regulations – Some states have experience rating caps or discounts for small employers.
• Industry Changes – Switching to lower‑risk job duties or re‑classifying work can reduce class rates.

Why a Multi‑Carrier Broker Helps

As a broker, The Workers' Comp Experts have access to multiple A‑rated markets, allowing you to compare loss costs, experience rating rules, and optional endorsements. We can:

• Secure the most competitive loss cost for your class codes.
• Guide you through E‑Mod improvement strategies.
• Handle state‑specific taxes and assessments so you stay compliant.
• Provide ongoing service, from policy issuance to claim support.

Learn more about our services here and meet our team online.

Frequently Asked Questions

• What is an “E‑Mod” and how is it calculated? The E‑Mod compares your actual losses to the expected losses for your industry. It is expressed as a factor; the lower the factor, the lower your premium.
• Do all states use the same loss cost? No. Each state’s rating bureau (e.g., NCCI, WCIRB, PCRB) publishes its own loss costs. That’s why rates vary by state and class code.
• Can I change my class code if I think it’s wrong? Yes. Work with your broker to review job duties and submit a re‑classification request. Correct classification can lower your premium.
• How often does my premium change? Premiums are typically recalculated each policy year when loss costs are updated and your E‑Mod is refreshed based on the prior year’s claims.
• Are there discounts for small businesses? Some states offer small‑employer discounts or caps on the E‑Mod. Your broker can identify any applicable savings.

Take Action

Understanding how workers' comp rates are determined empowers you to manage costs and protect your workforce. Ready to review your current program?

Get a free policy review — call 859-407-4888 or request a quote.