Here's something most general contractors learn the hard way: workers' compensation insurance isn't just a legal requirement—it's the difference between a workplace accident being a manageable setback and a business-ending catastrophe. If one of your crew members falls off scaffolding or gets injured operating equipment, you're looking at medical bills that can easily hit six figures. Without workers' comp, those costs come straight out of your business accounts.
But workers' comp does more than protect your bank account. It covers your employees' medical expenses, rehabilitation costs, and lost wages while they recover. And in most states, once you hire your first employee, it's legally required—no exceptions.
When General Contractors Need Workers' Comp
The rules vary by state, but the trend is clear: coverage requirements are expanding. As of 2025, most states require workers' compensation as soon as you hire your first employee. Some states like California are going even further—new legislation is phasing in requirements for all licensed contractors by 2028, regardless of whether they have employees.
Beyond state law, there's a practical reason you'll need coverage: client requirements. Almost every commercial project owner requires proof of workers' comp before you can bid on their job. Without it, you're essentially locked out of the most profitable work. The standard they're looking for is $1 million per occurrence and $2 million aggregate—well above most state minimums.
Even if you're a solo contractor now, think ahead. The moment you bring on a helper—even temporarily—you need coverage. And in states like Minnesota, non-compliance triggers immediate work stoppage and fines. Not worth the risk.
Understanding Class Codes and How They Affect Your Rate
Workers' comp rates aren't one-size-fits-all. Your premium is calculated based on classification codes—three or four digit numbers assigned by the National Council on Compensation Insurance (NCCI) that describe the type of work your employees do. Each code has its own rate per $100 of payroll, based on decades of claims data.
For general contractors, you'll likely encounter several codes depending on your crew's work. Code 5606 covers project managers. Code 5645 applies to carpentry and residential construction work. Roofers fall under Code 5551, one of the highest-risk (and highest-cost) classifications. Your office staff gets classified under Code 8810, which carries much lower rates since they're not exposed to jobsite hazards.
Here's where it gets expensive: rates for residential construction work (Code 5645) range from $3.51 per $100 of payroll in North Dakota to $43.42 in Georgia. That's a 12-times difference for the exact same work, just in a different state. If you've got $150,000 in annual payroll, you're paying $5,265 in North Dakota versus $65,130 in Georgia.
Getting the right class codes matters. If your insurer assigns you a higher-risk code than your actual work warrants, you'll overpay. Make sure your agent understands exactly what your crew does day-to-day, and review your policy annually to ensure the codes still match your operations.
The Experience Mod: Your Safety Score That Follows You
Your Experience Modification Rate—usually called EMR or X-Mod—is probably the single most important number in your workers' comp policy. It's a multiplier applied to your premium based on your claims history compared to other contractors your size. An EMR of 1.0 means you're average. Below 1.0 means you're safer than average and get a discount. Above 1.0 means you've had more claims than expected and pay a penalty.
Your EMR gets calculated using your previous three years of claims data, excluding the most recent year. So in 2025, insurers are looking at your 2021, 2022, and 2023 claims. That means a bad year follows you for three years. If you have a spike in injuries, expect your premium to stay elevated until those claims age out of the calculation period.
Here's the financial impact: if your base premium is $30,000 and your EMR is 1.25, you're actually paying $37,500. Drop that EMR to 0.85, and you're down to $25,500—a $12,000 annual savings for the same coverage. That's real money that goes straight to your bottom line.
Beyond cost, your EMR affects your ability to bid on jobs. Public projects often have EMR requirements, and contractors with excessive X-Mods may be disqualified before they even submit a bid. Keeping your EMR low isn't just about saving money—it's about staying competitive.
What Drives Your Workers' Comp Costs
The national average for workers' comp is around $1.03 per $100 of payroll across all industries, but construction runs significantly higher due to the physical nature of the work. For 2025, contractors can expect to pay roughly $94 per month per employee, though this varies widely based on several factors.
Your payroll size is the foundation of the calculation. Workers' comp rates are expressed as a dollar amount per $100 of payroll. If your rate is $10 per $100 and you've got $300,000 in annual payroll, you're paying about $30,000 annually. As your business grows and you hire more people, your premium grows proportionally.
Your state matters tremendously. States like California and Montana have the highest rates in the country, driven by higher medical costs and more generous benefit structures. Meanwhile, states like Maryland, Virginia, Utah, North Carolina, and Arizona offer some of the lowest rates. If you work across state lines, you'll need coverage in each state, and the costs can vary dramatically.
Your claims history is where you have the most control. Insurers look at both frequency (how many claims) and severity (how expensive they were). A single catastrophic injury can hurt your rate more than several minor incidents, but frequent small claims signal systemic safety problems. The good news? Investing in safety training, proper equipment, and proactive hazard management pays for itself many times over through lower premiums.
How to Keep Your Premiums Under Control
The most effective way to reduce your workers' comp costs is simple: prevent injuries. Every dollar you spend on safety equipment, training, and proper procedures comes back to you in lower premiums. Require hard hats, safety harnesses, and proper PPE. Hold regular safety meetings. Address hazards immediately when you spot them. It sounds basic, but contractors who do this consistently see their EMRs drop year after year.
Make sure your class codes are accurate. If your employees spend most of their time on lower-risk tasks but you're coded for high-risk work, you're leaving money on the table. Review your policy with your agent annually and ask them to verify the codes match your current operations.
Shop around, but do it smartically. Workers' comp is heavily regulated, so rates don't vary wildly between insurers for the same coverage. However, some carriers specialize in construction and offer better service, more flexible payment plans, or additional safety resources. Get quotes from at least three insurers, and don't just look at price—consider what support they'll provide if you do have a claim.
Consider a pay-as-you-go policy if cash flow is tight. Traditional policies require a large upfront premium based on estimated payroll, with an audit at the end of the year. Pay-as-you-go links your premium directly to your actual payroll each pay period, eliminating the year-end surprise bill and improving cash flow.
Getting Started with Workers' Comp
If you're hiring your first employee or expanding into a new state, don't wait until the last minute to get coverage. Most policies have minimum premiums around $750 annually, regardless of your actual payroll, so factor that into your hiring decision.
When you talk to insurance agents, have your payroll records ready, along with a clear breakdown of what each employee does. The more detail you can provide about job duties, the more accurate your quote will be. Ask about safety programs and loss control services—many insurers offer free resources that can help you reduce claims before they happen.
Finally, treat workers' comp as an investment in your business, not just an expense. Yes, premiums can be substantial—especially in high-cost states. But the alternative is unthinkable. One serious injury without coverage could mean lawsuits, fines, and potentially losing your contractor's license. Get the coverage, focus on safety, and watch your rates improve as your track record does.
