How much your business will pay for workers’ compensation insurance depends on several factors.
How much payroll does your business project for the next 12 months?
Workers’ compensation policies are typically issued for a 12-month period. Your premium cost is directly related to how much payroll you have. More payroll typically means you are covering more employees.
What type of business do you have?
Businesses that work in more hazardous conditions tend to have higher rates than businesses with low hazards. For example, the claims costs for a roofer would be expected to be higher than a bookkeeper. Each classification rate reflects the expected claims costs for the industry it represents. There are approximately 600 different classifications that cover each type of business in Oregon.
How is workers’ compensation premium calculated?
As explained above, the two primary components that drive workers’ compensation costs are rates and payroll. Once you know your payroll and the rate for your business classification, you can apply this formula to estimate your premium:
For example: Widget Manufacturing's classification rate is $5. The projected 12-month payroll is $100,000. The company’s estimated premium would be $5 x $100,000/100 = $5,000.
There are some other additions and subtractions, such as taxes, premium credits, experience modifications, etc., but the formula will give you a base to start with.
What is a minimum premium?
A minimum premium is the least amount an insurer will charge for a workers’ compensation policy. Some small businesses, especially when they start, may have low payroll. If that low payroll results in very low premium, the insurers may charge you their minimum premium instead. If you are a small employer with low payroll, it is in your best interest to shop around, not only for the lowest rates, but also ask what the company minimum premium is for your assigned business classification. The company with the lowest rate may have a higher minimum premium than another company with a higher rate, but lower minimum premium.