If you run a home remodeling business with employees, workers' compensation insurance isn't just a nice-to-have—it's almost certainly required by law. And even if you're technically exempt as a sole proprietor in your state, understanding how workers' comp works can save you thousands of dollars and help you win more contracts. Let's break down what you actually need to know.
Why Home Remodelers Need Workers' Comp
Home remodeling is inherently physical work. Your crews are operating power tools, climbing ladders, lifting heavy materials, and working in spaces that can present unexpected hazards like old wiring or unstable structures. When someone gets hurt on the job—and in construction, it's a matter of when, not if—workers' compensation covers their medical bills and lost wages while protecting your business from lawsuits.
Here's the reality: most states require workers' comp as soon as you have employees. Some states trigger coverage requirements with just one employee, while others set the threshold at four or five. Construction trades often face stricter rules than other industries. In Colorado, for example, even sole proprietors in construction must carry workers' comp coverage—no exemptions. California is phasing in similar requirements, with full enforcement beginning in 2026.
Beyond legal requirements, there's a practical business reason to carry coverage: general contractors typically won't hire subcontractors without proof of workers' comp insurance. If a sub doesn't have coverage and one of their workers gets hurt on the job, the GC becomes responsible for benefits. No one wants that liability, so having your certificate of insurance ready is essential for winning work.
Understanding Class Codes for Remodeling Work
Workers' compensation rates are determined largely by class codes—standardized categories that group similar types of work based on risk. For home remodeling contractors, the class code you're assigned has a direct impact on what you pay per $100 of payroll.
The most common class code for residential remodeling is 5645, which covers carpentry work on residential dwellings not exceeding three stories in height. This includes framing, drywall, siding, roofing deck work, cabinet installation, trim work, and general remodeling projects. The average base rate for code 5645 runs around $11 per $100 of payroll, though this varies significantly by state.
If you do interior finish work exclusively—think painting, trim installation, or flooring without structural carpentry—you might qualify for code 5437, which averages around $6 per $100 of payroll. That's nearly half the rate of full remodeling work.
Work on buildings over three stories or commercial properties falls under code 5403, which carries even higher rates—sometimes $20 to $28 per $100 of payroll depending on your location. If your remodeling business occasionally takes on commercial projects or taller residential buildings, you'll need to understand how your payroll should be allocated across different class codes.
Getting your classification wrong can be costly. If an audit reveals that payroll was misclassified from a lower-risk code to 5645 or 5403, you could owe more than $5,000 in additional premium per $100,000 of payroll that gets reassigned. Work with your insurance agent to document your operations accurately from the start.
How Your Experience Mod Affects Your Premium
Your Experience Modification Rate—commonly called the EMR, X-Mod, or E-Mod—is a multiplier that adjusts your workers' comp premium based on your claims history compared to similar businesses in your industry. Think of it as a credit score for workplace safety.
An EMR of 1.0 is the baseline—it means your claims history is average for your classification. If your EMR drops to 0.8, you'll pay about 20% less than the standard rate. But if claims push your EMR to 1.3, you're paying 30% more. For a remodeling company with $500,000 in annual payroll and a base rate of $11 per $100, that's the difference between paying $44,000 or $71,500 per year.
New businesses don't have an EMR—they start at the neutral 1.0 rate. It typically takes three years to develop enough claims history for an experience rating. During this time, every injury matters because it establishes the pattern that will affect your rates for years to come.
Here's something many contractors don't realize: claim frequency impacts your EMR more than claim severity. The NCCI—the organization that calculates experience mods in 39 states—considers multiple small claims worse than one large claim because frequency suggests systemic safety problems. Two $5,000 claims will hurt your EMR more than a single $10,000 claim.
General contractors and property developers often won't work with subcontractors whose EMR exceeds 1.0. An EMR above 1.25 can trigger regulatory scrutiny and may disqualify you from public projects. Your experience mod isn't just about insurance costs—it affects your ability to compete for work.
What Workers' Comp Actually Costs
The average workers' comp cost for construction businesses falls between $5.25 and $10.25 per $100 of payroll, but home remodeling often runs higher due to the diverse and hands-on nature of the work. Here's a realistic breakdown of what to expect:
For a small remodeling company with $200,000 in annual payroll and a 1.0 EMR, you might pay between $16,000 and $22,000 per year for workers' comp coverage, depending on your state and the exact nature of your work. That works out to roughly $1,300 to $1,800 per month.
The premium calculation formula is straightforward: (Classification rate) x (Experience Modification Rate) x (Annual payroll ÷ $100). So if your rate is $11, your EMR is 0.85, and your payroll is $300,000, the math is: $11 x 0.85 x 3,000 = $28,050 annual premium.
Rates vary dramatically by state. A remodeler in California might pay significantly different rates than one doing identical work in Texas. States with monopolistic funds—like Ohio, North Dakota, Washington, and Wyoming—require you to purchase coverage through the state, eliminating private market options.
Strategies to Lower Your Workers' Comp Costs
The most effective way to reduce your workers' compensation costs over time is to prevent injuries in the first place. Implementing regular safety training, enforcing proper equipment use, and maintaining a culture where workers feel comfortable reporting hazards before they cause injuries will reduce your claim frequency and improve your EMR.
When injuries do occur, close claims as quickly as possible. Open claims—especially those that drag on for months—get valued higher in your experience mod calculation. Work with your insurance carrier to ensure injured employees get appropriate medical care and return to work as soon as it's safe to do so.
Make sure your employees are classified correctly. If you have office staff, they should be coded separately from your field crews—administrative employees have rates under 1% of payroll compared to 8-11% for carpentry work. Accurate payroll allocation by job function can significantly reduce your overall premium.
Some states offer Contractor's Credit Premium Adjustment Programs that provide discounts to contractors who pay above-average wages. Check with your insurance agent to see if your state participates and whether your wage levels qualify you for additional credits.
Getting Started with Workers' Comp Coverage
To get a workers' comp quote, you'll need to provide your business structure, the types of work you perform, your estimated annual payroll broken down by job function, and your claims history if you have one. Insurance carriers will use this information to assign class codes and calculate your premium.
Shop around—rates can vary between carriers even within the same state. Pay attention to pay-as-you-go options that let you make smaller payments based on actual payroll rather than estimates, which can improve cash flow for businesses with variable workloads. And don't forget to request your experience modification worksheet from NCCI or your state rating bureau to verify the calculations are accurate.
