If you run a demolition contracting business, you already know that your work involves serious risks. What you might not realize is just how much those risks affect your insurance costs—and how much control you actually have over them. Workers' compensation insurance is mandatory in nearly every state if you have employees, and for demolition contractors, it's typically one of your biggest operating expenses.
Here's the good news: understanding how workers' comp works for your industry—from class codes to experience modification rates—can save you thousands of dollars a year. Let's break down what you need to know.
Why Demolition Contractors Pay More for Workers' Comp
Workers' compensation rates aren't arbitrary—they're based on risk. Your business gets assigned a classification code by the National Council on Compensation Insurance (NCCI), and that code determines your base rate. For demolition contractors, the primary code is 5701, which covers "Wrecking: Building or Structures." This code consistently ranks among the highest-rated classifications because demolition work is inherently dangerous.
How expensive? Demolition contractors typically pay around $17 per $100 of payroll, though rates can climb even higher depending on your state and claims history. Compare that to office workers at around $0.50 per $100 of payroll, and you can see why this coverage takes such a big bite out of your budget. If you're paying $500,000 in annual payroll, you're looking at roughly $85,000 in workers' comp premiums—before any adjustments.
The classification includes everyone on your crew, from the operators running excavators to clerical staff and salespeople working at demolition sites. If you work on multiple types of structures during a single project, your entire operation gets classified under the highest-rated code applicable. That's just how the system works—and why precision in classification matters.
Understanding Your Experience Modification Rate
Your experience modification rate—often called your EMR or e-mod—is where you can actually influence your costs. Think of it as your safety report card. A rate of 1.0 means you're average for your industry. Below 1.0? You're doing better than average, and you'll pay less. Above 1.0? Your claims history is worse than expected, and you'll pay a premium.
Here's how it's calculated: insurance companies look at your actual losses over the past three completed policy years (excluding the most recent year) and compare them to the expected losses for similar businesses in your industry. If your actual claims were $150,000 but the expected amount was $100,000, your e-mod will climb above 1.0—potentially to 1.5 or higher. That means you'll pay 50% more than the base rate.
The formula weighs frequency of claims more heavily than severity. Translation: five workers with minor injuries that each cost $5,000 will hurt your e-mod more than one catastrophic $25,000 claim. This is counterintuitive but crucial to understand. If you can keep your crew from getting hurt in the first place—even with small, seemingly insignificant injuries—you'll see the biggest improvement in your rate.
State-Specific Requirements You Should Know
Workers' compensation requirements vary by state, but the bottom line is nearly universal: if you have employees, you need coverage. Most states require proof of insurance before you can pull permits or bid on commercial projects. Some states, like California, have recently tightened enforcement. While a 2026 mandate requiring all licensed contractors to carry workers' comp has been delayed to 2028, regulatory scrutiny is increasing nationwide.
There are limited exemptions—usually for sole proprietors with no employees or certain corporate officers who formally waive coverage—but these are narrow and state-specific. Don't assume you're exempt without confirming with your state's workers' comp board or an experienced insurance agent. The penalties for operating without required coverage can be severe, including fines, criminal charges, and personal liability for employee injuries.
How to Lower Your Workers' Comp Costs
The single most effective way to reduce your workers' comp premium is to prevent injuries. That sounds obvious, but most demolition contractors underestimate how much a formal safety program can save them. Start by identifying the specific hazards your crew faces—falling debris, structural collapses, hazardous materials exposure—and develop written protocols to address each one.
Train your employees regularly and document everything. Insurance companies look favorably on businesses that take safety seriously, and some offer premium discounts for completing recognized safety programs. Beyond the premium savings, fewer injuries mean less downtime, better morale, and easier hiring in a competitive labor market.
When injuries do happen, get injured workers back on the job quickly with a recover-at-work program. Light-duty assignments—even simple tasks like equipment inventory or paperwork—keep claim costs down and maintain your connection with the employee. Medical-only claims (injuries that don't result in lost work time) are discounted by 70% in your e-mod calculation, making them far less damaging than lost-time claims.
Finally, shop around for insurance. Workers' comp rates have increased over 25% in most states in recent years, and different carriers price demolition risks differently. Work with an independent agent who specializes in construction insurance and can compare multiple options. Ask about pay-as-you-go programs that base premiums on actual payroll rather than estimates, which can improve cash flow significantly.
Getting Started with the Right Coverage
Don't wait until you're bidding on a job to figure out your workers' comp situation. Get coverage in place before you hire your first employee, and review your policy annually as your payroll and operations change. Make sure your agent understands demolition work specifically—generic contractors' policies may not account for the unique hazards you face, from asbestos abatement to high-reach demolition.
Request a copy of your experience modification worksheet each year and review it carefully. Mistakes happen, and an error in your claims history can cost you thousands. If you spot something that doesn't look right, challenge it immediately. Your insurance company is required to investigate and correct legitimate errors.
Workers' compensation is expensive for demolition contractors, but it doesn't have to be a budget killer. By understanding how your rates are calculated and taking proactive steps to improve your safety record, you can take control of this major expense and protect both your employees and your bottom line.
