Workers compensation is necessary, not evil. It protects you, the employer, from being sent into financial dire straits in the event that an employee is hurt on the job. Before workers compensation, employees would sue their workplace to recoup costs after an injury, and the employer would be forced to shell out steep sums of money that they hadn’t planned on spending.
Today, we as employers have the luxury of protecting ourselves from these unexpected costs, by taking out a workers compensation plan. “But how much do I need to pay for this protection?” you might be asking yourself. Read on to learn more about how these rates are formulated.
It’s important to note that you should be keeping careful records of your employees’hours and days worked. This is because laws came into effect in 2008, requiring insurers to perform audits on all new policies, making it easier to identify which classification employees fall into. The different classifications tell you how much you’re paying on your premium per $100 of payroll for those employees. So, it’s vitally important for you to keep careful records of hours worked for each employee each day including daily start and stop times.
Let’s dig in and define a few terms that come into play when we talk about workers compensation rates:
What’s the difference between an “advisory pure premium rate” and an “insurer’s rate”?
The difference between the two is that an advisory pure premium rate is a recommendation from the Workers Compensation Insurance Rating Bureau of California (WCIRB) to the California Department of Insurance that helps to determine insurer rates. The advisory pure premium rate accounts for claims/losses as well as a loss adjustment expense. The insurer’s rate includes both of those factors but also includes administrative costs including taxes and commissions.
What do dual wage classifications mean?
Dual wage classifications mean that there are two classifications for a particular industry segment, based on wage. For example, instead of there being one rate for “steel framing – light gauge,” there are two: #5632 for steel framing – light gauge employees who make less than $29/hour and #5633 for those who make $29/hour or more.
Each of these dual wage classifications has a different advisory pure premium rate. As of this writing, there are sixteen dual wage classifications. The WCIRB has a handy chart so you can look up the rates yourself, once you know your classification(s).
How much can I expect to spend on my worker’s comp insurance?
The premium you pay is determined in large part to your business’ industry classification(s).
The basic formula is: Insurance rate for your classification(s) x total payroll of the employees in each of your classifications.
Workers comp rates are per $100 of payroll, so if you have a rate of $5, and you have $200 of payroll, your premium is $10.
Next time you get that premium bill, you will have a better understanding of how workers compensation rates are determined. If you want to know more about how a workers compensation policy can protect you and your business, email us a question. Or, if you’re looking to take out a new policy, why not request a quote?