Whether you own a restaurant or a tire manufacturing company, you need workers’ comp insurance. The principal purpose of workers comp is to cover the cost of medical expenses and lost wages that occur due to injuries in the workplace. If you do not have workers comp insurance, you can face severe criminal and civil penalties.

Across the eleven largest industries, the average annual cost per employee for workers comp insurance is $1,672.78. This comes down to $0.84 per employee per hour. The cheapest industry is real estate, which costs $332.80 per year per employee. Construction, the most expensive, costs $5,331 per year per employee. See our table below to learn the exact costs in each of the top eleven industries.

Do you want to learn more about the cost of workers comp insurance and why it’s so important? Keep reading and check out the most frequently asked questions towards the end of our article. 

The Cost of Workers Comp Insurance by Industry

Source: https://workcomplab.com/insurance-industry/
Note: the annual cost per employee assumes 40 hours a week and 50 weeks a year.

What Is Workers Comp Insurance?

Workers’ compensation coverage is a form of protection against expenses that arise from work-related injuries. For example, imagine that you operate a manufacturing plant. Your new employee, Jim, breaks both his arms on his first day by incorrectly operating a machine. 

Because of the severity of his injuries, Jim will need to undergo surgery. Doctors estimate the recovery time to be three months. Not Jim has racked up expensive medical bills and will not be able to work for three months. As long as the expenses fall under your coverage limits, your workers’ comp insurance policy will cover them.

Standard workers comp policies cover the below items:

Workers Comp Insurance – Is it Required in Every State?

Every state has different rules when it comes to workers comp insurance. In many states, you do not need a workers comp policy if you employ less than three employees or if you’re a sole-proprietor.

There are some caveats to this exception, especially for employers who work in risky environments, such as construction.  To learn more about the regulations in your state, you should visit your state’s Workers’ Compensation Commission website.

In many states, not having workers’ compensation is a serious crime. For example, in the state of Iowa, you could be imprisoned for up to five years and fined up to $7,500. And not only will the state fine you, but you will also be personally responsible for lost wages and medical expenses if your employee gets injured while working.

How to Save Money on Workers Comp Insurance

Aside from comparing multiple quotes when you buy a workers comp insurance policy, there are various ways to save money in the long run. Your main goal is to avoid claims. The more claims you file, the more your workers comp policy will cost.

Conduct Frequent Safety Audits

Maintaining a safe working environment is key to reducing employee injuries. This is especially relevant in manufacturing or other manual labor environments. You should conduct routine inspections to ensure that equipment is functioning properly.

Depending on the size of your business, it’s a great idea to hire an outside company to inspect the safety of the work environment. 

Develop a Training Program for All Your Employees

No matter what industry your business falls under, you should have comprehensive training for your employees. There’s a risk of injuries in virtually all industries and a training program can help mitigate the risks.

We recommend ongoing training instead of just a one-time training course during an employee’s orientation. 

Hire Experienced Employees

Many businesses avoid workers comp claims by simply hiring experienced employees. Although experienced employees should still undergo training programs, they do not need as much hand-holding.

Hiring experienced might increase your payroll but actually, save your company money by lowering the cost of your workers comp premiums.

Reprimand Employees for Workplace misconduct

We’re all human and mistakes happen. However, you should reprimand employees when repeat accidents happen due to carelessness or blatantly not following safety procedures.

This includes writing employees up, making them take additional training employees, and even lowering their hours. Always be mindful of local labor laws; you can’t simply fire employees who accidentally injure themselves on the job.

Conduct Drug Tests

You can reduce the incidence of on-the-job accidents by conducting both pre-hire drug tests and ongoing drug tests. Drug tests are especially important when employees operate large machinery or drive vehicles. In fact, insurance companies may actually require that you conduct drug tests. 

Give Your Employees More Vacation Time

It’s no surprise that overworked employees are more susceptible to injures while on the job. If you increase your employee’s PTO time from one week a year to three weeks per year, you could see a significant decrease in injuries. Increasing PTO time can also boost the overall morale at the company and increase productivity.

Investigate Accidents

Anytime there is an accident in the workplace, make sure to thoroughly investigate. For example, what caused the accident to happen in the first place?

Was it a lack of training? A faulty machine? After investigating the culprit of the accident, make sure to document so that you can mitigate future accidents.

Start a Wellness Program

Most employers do not realize that starting a wellness program can reduce worksite accidents. A wellness program could include extra time during the day to work out, free gym memberships, and even mental health classes.

When you have healthier and more focused employees, there will be fewer accidents. Not only that, but your employees will be more productive and more likely to show up to work.

Join a Professional Employer Organization (PEO)

A professional employer organization (PEO) can help you better understand workers’ compensation claims and help you increase your workplace’s safety. In addition, a PEO helps you maintain relations with employees who sustained injuries and help you develop return-to-work programs. 

Workers Comp Insurance Riders

Various riders exist for workers comp policies. A rider is essentially an add-on that to a policy that gives you extra coverage. There are not many riders offered for workers comp policies, unfortunately.

The most notable rider is “Other States Insurance.” Under this rider, you can retain your worker’s comp coverage if your employee gets injured in one of the following states: Ohio, Wyoming, Washington, and North Dakota. These are monopolistic states, meaning they do not permit you to buy worker’s comp insurance from private insurance companies. 

Factors that Impact the Price of Workers Comp Premiums

As indicated in our list above, the industry is a key driver behind the cost of workers comp insurance. However, various other factors affect the price as well, including:

• The total number of employees that work for you
• The state your business operates in
• Your company’s history of claims
• Extra riders that are included with your policy
• Your company’s total, annual payroll
• Worker Comp audits

You might be wondering, what’s a workers comp audit? Simply put, it’s an audit performed by the state or insurance company that either lowers or raises the cost of monthly premiums.

The insurance company (or state) compares the payroll at the beginning of the year to the payroll at the end of the year. The auditors will also look at the nature of the work performed and adjust the price accordingly.

The Types of Injuries and Conditions That Are Covered

While workers comp laws vary in each state, these are the most commonly covered injuries and conditions:

The Types of Injuries and Conditions That Are Not Covered

Various injuries and conditions are not covered by workers comp, including:

If you are not sure if an injury or condition is covered by workers comp, we recommend contacting your insurance carrier or state’s Workers Compensation Commission.

How To File a Workers Comp Claim

The employer (not the employee) is responsible for initiating a worker comp claim. Depending on the insurance carrier, employers can either submit documentation online or through the mail. In some cases, a doctor will need to provide a medical report. 

Once the insurance carrier receives the claim, it will either deny or accept it. The carrier might deny it if it did not receive enough documentation, or believes the claim is falsified. If the claim is approved, the insurance carrier will arrange payment with the employee and third parties such as a medical provider. 

The Types of Workers Comp Insurance Claims

Generally, there are three classifications of worker comp claims:

Medical-Only

A medical-only claim is when an employee requires medical attention but can return to work. The worker’s comp policy does not need to pay out lost wages. 

Temporary Disability

Broken bones are a prime example of temporary disabilities. The workers’ comp policy will need to pay for medical expenses and may need to pay lost wages if the employee cannot return to work. 

Permanent Disability

As the name implies, a permanent disability claim arises from an injury or condition that cannot be treated. An example of a permanent disability is an amputated limb. When an employee gets permanently disabled while working, he or she may not be able to return to work. 

Who Sells Workers Compensation Policies?

You can buy workers comp policies from either private insurance companies or the state government.

The State Government

Four states require companies to buy worker comp insurance through government insurance funds: Ohio, Wyoming, Washington, and North Dakota.

In some states, you have the option to buy workers comp from either a private insurer or through the state. Examples of states with non-monopolistic funds include Arizona, Colorado, Hawaii, and Idaho. 

A handful of states do not have workers comp funds – Wisconsin, Florida, Georgia, and Nevada, to name a few. If you do business in one of these states, you have to buy insurance through a private insurance carrier or self-insure your business.

Insurance Carriers

If you do not live in one of the four monopolistic states, you can buy workers comp from a private insurance carrier. Based on the amount of premium written, the top five insurance companies that sell workers comp are:

1. Travelers
2. Hartford
3. Berkshire Hathaway
4. Zurich Insurance
5. AmTrust Financial Services

These insurance companies all offer standard workers comp coverage – medical expenses, lost wages, and death benefits. A handful of the companies offer additional services, such as risk insights and medical management tools (Zurich, for example).

Pros and Cons of Buying Workers Comp Insurance from the State

Pros

• Easy to navigate
• Eliminates the need to obtain multiple quotes
• Guaranteed coverage no matter the risks associated with the industry
• Sometimes easier to file claims

Cons

• Some states have excessive late fees
• Lack of options

Pros and Cons of Buying Workers Comp Insurance from an Insurance Carrier

Pros

• Ability to compare prices and select the cheapest option
• You can buy riders to add on to your coverage
• Some insurance companies offer risk-management tools
• Sometimes easier to file a claim compared to state-run programs

Cons

• Some insurance companies have higher premiums for risky industries
• There may be more fluctuation when it comes to pricing

Most Frequently Asked Questions

Do you want to learn more about workers’ comp insurance? Take a look at some of the most frequently asked questions below. 

What Happens If I Don’t Have a Workers Comp Policy?

If you do not have a workers comp policy, you could face both civil and criminal penalties in the state you conduct business in. The penalties could include hefty fines and even prison time. You can also be sued by the employee who was injured for his or her medical expenses and lost wages.

Can You Self-Insure Your Workers Comp?

Yes, you can self-insure your workers’ compensation plan, but it’s not an easy process. You need to meet various state regulations and receive approval. States will want to see that you have enough funds to pay for employee medical expenses and lost wages.

Does Workers Comp Coverage Protect Me from Lawsuits?

A workers comp policy does cover the costs of a workers’ compensation settlement. This includes legal fees. However, workers comp coverage does not cover you from lawsuits brought against you due to unsafe working conditions. 

How Can I Get the Cheapest Insurance Policy?

The best way to get the cheapest workers comp insurance policy is to compare multiple quotes online. Another way to get an affordable policy is to demonstrate that your business has a safe work environment.

Does a Contractor Need Coverage Under a Workers Comp Policy?

Certain states may require that independent contractors have workers comp policies. If you chose to have contractors work for you, it’s a smart idea to require that they have workers’ comp insurance. When your contractors have workers comp coverage, they are not as much of a liability.

A Final Glance 

As calculated at the beginning of our guide, the average cost of workers comp across eleven of the largest industries is $1,672.78 annually per employee. Despite the added cost, workers comp is absolutely beneficial to the company. The cost of an average workers comp claim is $41,000, which is covered either by a private insurance company or a state insurance fund.

Unless you self-insure your company, you have no choice but to get a workers comp policy from either the state or an insurance carrier. Even if you work in construction, where the average annual cost per employee is $5,331.00, there are various ways to reduce your long-term workers’ comp expenses.

Your goal as an employer is to maintain a safe workplace and subsequently lower the number of workers comp claims. Not only does an unsafe workplace increase workers comp expenses through increased claims but it can also lead to OSHA penalties. Even though workers comp is a big expense for some companies, it incentivizes employers across multiple industries to maintain safe working environments.