How much does workers' comp insurance cost per employee?

There's no single per-employee cost because workers' comp is priced per $100 of payroll, not per person. An employee making $50,000 per year in a low-risk office job might cost $250-500 annually to insure, while an employee making the same amount in construction could cost $4,000-6,000 or more. The average small business pays $45-86 per month total for all employees combined.

Why is workers' comp so expensive in some states?

State costs vary based on the benefits required by law, medical costs in that state, and how the state regulates insurance. California and Montana have high costs due to generous benefit requirements and high medical costs, while states like North Carolina and Arizona have lower costs due to more modest benefit structures and lower medical expenses. The difference can be three to four times between the highest and lowest-cost states.

Can I get workers' comp if I'm self-employed or have no employees?

In most states, workers' comp is only required if you have employees, not for sole proprietors. However, you can often purchase coverage for yourself voluntarily, which can be valuable if you work in a high-risk industry. Some states do require coverage for sole proprietors in certain industries like construction. Check your state's specific requirements.

What happens if I get my workers' comp class code wrong?

If you're classified in a lower-risk (cheaper) code than you should be, you'll face an audit adjustment and have to pay the difference plus potential penalties. If you're in a higher-risk (more expensive) code incorrectly, you're overpaying but won't get penalized. Always work with your insurance agent to ensure accurate classification, as insurers audit policies annually.

How can I lower my experience modification factor?

Your e-mod improves by preventing workplace injuries and managing claims effectively. Implement strong safety programs, provide proper training and equipment, and establish return-to-work programs for injured employees. Your e-mod is based on three years of claims history (excluding the most recent year), so improvements take time but create lasting savings.

Do I pay workers' comp on 1099 contractors?

Generally no—1099 contractors are considered self-employed and responsible for their own insurance. However, some states and insurers may require you to prove contractor status during audits, and if contractors are misclassified (should be W-2 employees), you could be charged for them retroactively. Always maintain proper documentation of contractor relationships and ensure your contractors carry their own coverage when appropriate.

How Much Does Workers' Comp Cost? 2025 Rates & Factors

If you're trying to budget for workers' compensation insurance, you've probably discovered something frustrating: there's no simple answer to what it costs. One business owner might pay $500 a year while another in the same city pays $5,000. Here's why that happens—and more importantly, how to figure out what you'll actually pay.

Workers' comp costs depend on three main factors: where you're located, what kind of work your employees do, and your safety track record. Think of it like car insurance—a 16-year-old with a sports car pays more than a 40-year-old with a minivan. Same concept here.

The Basic Formula: Cost Per $100 of Payroll

Workers' compensation is priced per $100 of payroll. The national average in 2024-2025 ranges from about $0.90 to $1.03 per $100 of payroll. So if you have $100,000 in annual payroll and a rate of $1.00, you'd pay roughly $1,000 per year.

But here's the catch: that national average is almost meaningless for your specific business. Your actual rate could be anywhere from $0.35 to over $10 per $100 of payroll depending on your circumstances. A software company with office workers might pay $0.50 per $100, while a tree trimming service could pay $12 or more for the same amount of payroll.

The basic calculation is simple: take your annual payroll, divide by 100, then multiply by your rate. If you have two employees making $50,000 each (total payroll of $100,000) and your rate is $2.00, you'd calculate it as: $100,000 ÷ 100 × $2.00 = $2,000 per year.

Classification Codes: Why Your Industry Matters So Much

Your workers' comp rate is primarily determined by your classification code—a 3 or 4 digit number that describes the type of work your employees do. Insurance companies have spent decades collecting data on which jobs lead to more injuries, and they price accordingly.

A clerical worker (class code 8810) sits at a desk most of the day. Their risk of serious injury is low, so their rate might be under $1 per $100 of payroll. A carpenter working on upper levels of buildings (class code 5403) faces much higher risks—falls, power tool injuries, etc.—so their rate could be $8-15 per $100 of payroll.

Getting your classification code right is crucial. If you're misclassified as higher-risk than you actually are, you'll overpay. If you're classified as lower-risk and later audited, you could face penalties and back payments. Most states use codes established by the National Council on Compensation Insurance (NCCI), though California, New York, New Jersey, Michigan, and Indiana have their own systems.

State-by-State Cost Differences

Where your business is located makes an enormous difference in your costs. In 2024, small businesses in Texas and Massachusetts paid an average of $32 per month, while businesses in Alabama paid $119 per month—nearly four times more for similar coverage.

Why such huge differences? Each state sets its own workers' comp regulations, including what benefits injured workers receive and how long they can receive them. States with more generous benefits tend to have higher premiums. Medical costs also vary significantly—treating an injury in California costs more than in North Carolina, so premiums reflect that.

The lowest-cost states in 2024 include Maryland, Virginia, Utah, North Carolina, and Arizona. The highest-cost states include California, Montana, Hawaii, and Wyoming. If you operate in multiple states, you'll need coverage in each one, and the rates can vary dramatically for the same employee classification.

Experience Modification Factor: Your Safety Report Card

Once you've been in business for a few years, you'll get an experience modification factor, or e-mod. This is basically your safety score, and it works as a multiplier on your premium. An e-mod of 1.00 is average—it doesn't change your premium. Below 1.00 means you're safer than average and you get a discount. Above 1.00 means you've had more claims than expected and you pay more.

The financial impact is real. One contractor reduced their e-mod from 1.13 to 0.98, saving nearly $7,800 per year. On the flip side, if your e-mod jumps to 1.25 because of several claims, you're paying 25% more than the base rate.

Your e-mod is calculated by comparing your actual claims to what would be expected for businesses like yours. It looks at your claims history over the past three years (excluding the most recent year, since claims are still developing). Major changes were implemented in 2024 across NCCI states that make the e-mod more state-specific and accurate, though most businesses saw changes of five points or less.

What Small Businesses Actually Pay

Let's talk real numbers. The average small business in 2024 pays about $45 per month, or $542 annually, for workers' comp coverage. That's the median—half pay less, half pay more. Businesses insured through The Hartford paid an average of $86 per month ($1,032 per year).

But remember, these are averages across all industries. A small graphic design studio with three employees might pay $300-500 per year. A small construction company with the same number of employees could easily pay $5,000-10,000 or more.

Good news: rates have been trending downward. In 2024, employers paid an average of 90 cents per $100 of payroll, down from 93 cents in 2023. Competition among insurers and improved workplace safety across industries have contributed to this decline.

How to Lower Your Workers' Comp Costs

The single best way to reduce your workers' comp costs is to prevent injuries. Every claim you avoid helps your e-mod score, which directly reduces your premiums. Invest in safety training, proper equipment, and a strong safety culture. It pays for itself.

Make sure your classification codes are accurate. If you have office staff and field workers, they should be classified separately. Paying the higher field worker rate for someone who sits at a desk all day is throwing money away.

Shop around. Workers' comp rates can vary between insurance carriers even for identical businesses. Get quotes from at least three insurers. Some specialize in certain industries and can offer better rates.

Consider a return-to-work program. Getting injured employees back to work in light-duty roles while they recover can significantly reduce claim costs, which improves your e-mod over time. Insurance companies look favorably on businesses with structured return-to-work policies.

Getting Your First Quote

When you request a workers' comp quote, you'll need to provide your annual payroll broken down by job classification, your business location, and your claims history if you've had coverage before. The insurer will assign classification codes and calculate your rate.

Keep in mind that your first-year premium is an estimate based on projected payroll. At the end of the policy year, you'll be audited, and your premium will be adjusted based on actual payroll. If you grew faster than expected and your payroll was higher, you'll owe more. If business was slower, you'll get a refund.

Workers' compensation costs are complex, but understanding the main drivers—your classification codes, your state, and your safety record—puts you in control. Focus on workplace safety, make sure you're classified correctly, and shop around for the best rate. Your premium isn't just a fixed cost; it's something you can actively manage and reduce over time.

How Much Does Workers' Comp Cost?

Key Takeaways