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Workers’ Compensation Insurance Premiums: Who’s Paying?

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Workers’ Compensation Insurance Premiums: Who’s Paying?


Understanding who pays the workers compensation insurance premiums is key for both employees and employers. The simple answer is: employers pay for workers’ compensation insurance premiums, not employees.

Quick Facts:
Employers are responsible for the premiums.
Employees are not required to pay from their wages.
State laws mandate the requirement of workers’ compensation insurance.

Workers’ compensation insurance is crucial because it protects both employees and businesses. It ensures that injured workers get necessary medical treatment and compensation while safeguarding employers from potentially crippling legal costs.

Understanding Workers' Compensation Insurance - who pays the workers compensation insurance premiums infographic pillar-5-steps

Understanding Workers’ Compensation Insurance


Workers’ compensation insurance, often called workers’ comp, is a type of insurance policy that provides benefits to employees who suffer work-related injuries or illnesses. It is a legal requirement in most states and serves as a safety net for both employees and employers.


The primary purpose of workers’ compensation insurance is to ensure that employees receive prompt medical care and financial support in the event of a workplace injury or illness. This type of insurance covers medical expenses, lost wages, and rehabilitation costs. In cases of work-related death, it also provides death benefits to the employee’s family.

For employers, workers’ compensation insurance helps mitigate the risk of lawsuits. When employees accept workers’ comp benefits, they typically waive the right to sue their employer for negligence, creating a more predictable and manageable risk environment for businesses.


Workers’ compensation insurance generally covers:

  • Medical Expenses: Costs related to hospital stays, surgeries, and other medical treatments.
  • Lost Wages: Compensation for the income lost while the employee is unable to work.
  • Rehabilitation Costs: Expenses for physical therapy and other rehabilitation services.
  • Death Benefits: Financial support for the family of an employee who dies due to a work-related incident.

Here’s a quick breakdown of what workers’ compensation insurance typically covers:

Medical ExpensesHospital stays, surgeries, X-rays, etc.
Lost WagesPartial income replacement during recovery
Rehabilitation CostsPhysical therapy and ongoing treatment
Death BenefitsFuneral costs and survivor benefits

Example: Suppose an employee in a construction company falls and breaks an arm while working. Workers’ comp would cover the medical bills, pay part of the lost wages during recovery, and cover any necessary rehabilitation.

Important Note: Workers’ compensation insurance does not cover injuries sustained during commutes, fights unrelated to work, or incidents involving substance abuse.

By understanding these key aspects, both employers and employees can better navigate the complexities of workers’ compensation insurance and ensure compliance with state laws.

Medical Expenses - who pays the workers compensation insurance premiums

Next, let’s delve into who pays the workers’ compensation insurance premiums and how these costs are calculated.

Who Pays the Workers Compensation Insurance Premiums?

When it comes to who pays the workers’ compensation insurance premiums, the responsibility falls squarely on employers. Employees do not contribute to these premiums, which means there are no deductions from their paychecks for this insurance.

Employers Foot the Bill

Employers are required by law to provide workers’ compensation insurance. This insurance covers medical expenses, lost wages, and rehabilitation costs for employees who are injured on the job. The premiums for this insurance are paid entirely by the employer.

No Payroll Deductions

Contrary to some other types of insurance, workers’ compensation premiums are not deducted from employees’ paychecks. This is different from Social Security or Medicare, where contributions are split between employer and employee. Workers’ comp is fully funded by the employer, ensuring that employees receive benefits without any out-of-pocket costs.

State Requirements

State laws mandate that most employers must have workers’ compensation insurance. However, the requirements can vary:

  • Coverage Mandates: Nearly all states require businesses to carry workers’ comp insurance, but there are exceptions. For example, Texas allows certain employers to opt out under specific conditions.
  • Exemptions: Certain professions, like real estate agents and independent contractors, may be exempt from mandatory coverage.
  • Insurance Options: Employers can choose between state-funded programs and private insurance companies, depending on their state. Some states, like Washington, do not allow private insurers for workers’ compensation.

Real-World Example

In California, workers’ comp insurance costs can range significantly based on job risk. For low-risk jobs, the cost averages 40 cents per $100 in payroll, while high-risk jobs can cost up to $33.57 per $100 in payroll . This shows how premiums can vary widely based on industry and job classification.

Understanding who pays for workers’ compensation insurance premiums can help both employers and employees navigate their responsibilities and rights.

Next, we’ll explore how these premiums are calculated and what factors influence their cost.

Calculating Workers’ Compensation Premiums

Calculating workers’ compensation premiums involves several key factors. Let’s break them down:


Payroll is a primary factor in determining workers’ compensation premiums. The cost is often calculated as a percentage of the company’s total payroll. For example, in California, the cost can range from 40 cents to $33.57 per $100 of payroll, depending on the job’s risk level. The higher the payroll, the higher the premium.

Industry Classification

Industry classification is another major factor. Jobs are classified based on the level of risk associated with them. For instance, an office worker will have a lower classification rate compared to a construction worker. The National Council on Compensation Insurance (NCCI) maintains over 700 class codes to help insurers classify jobs and determine appropriate rates.

Claims History

Claims history impacts premiums significantly. If a business has a history of frequent or severe workers’ compensation claims, its premiums will be higher. Insurers use an experience modification factor to adjust rates based on past claims. A business with fewer claims will benefit from lower premiums, while a history of numerous claims will result in higher costs.


Adjustments can also affect premiums. These adjustments may be based on state-specific regulations, safety programs, or even the accuracy of job classifications. For example, ensuring that employees are correctly classified can prevent costly retroactive charges during audits. Additionally, some states offer discounts for implementing effective safety programs.

By understanding these factors—payroll, industry classification, claims history, and adjustments—employers can better manage their workers’ compensation premiums.

Next, we’ll look at the various options for acquiring workers’ compensation insurance.

Options for Acquiring Workers’ Compensation Insurance

When it comes to getting workers’ compensation insurance, employers have several options. These include state funds, private insurance, and self-insurance. Each option has its own set of rules and benefits. Here’s a closer look:

State Fund

In some states, employers can buy workers’ compensation insurance from a state fund. These funds are often designed to make sure that all businesses can get coverage, even if they have a poor safety record or are in a high-risk industry.

Private Insurance

Employers can also choose to buy workers’ compensation insurance from private insurance companies. This option often provides more flexibility and customized solutions.


Some larger companies opt for self-insurance. This means they set aside their own funds to pay for workers’ compensation claims. While this can save money, it also comes with risks. Most self-insured companies work with third-party administrators (TPAs) to handle claims and may also need legal help to comply with state laws.

By understanding these options, employers can choose the best way to acquire workers’ compensation insurance that fits their business needs.

Managing and Reducing Workers’ Compensation Costs

Managing workers’ compensation costs can be challenging, but there are several strategies that can help. Here are some effective tips:


Start by getting quotes from various insurance carriers. It’s best to do this several months before your policy is due for renewal. This gives you time to compare rates and find the best deal. Your insurance agent can assist in gathering these quotes, ensuring that you get the most competitive rates available.

Proper Classification

Make sure your employees are properly classified. Misclassifying employees to get a lower rate can lead to costly audits, retroactive charges, and even legal penalties. Accurate classification ensures that you’re paying the correct premiums and avoids any surprises down the road.

Claims Handling

Research how different insurers handle claims. An insurer that pays out every claim without scrutiny can drive up your premiums. On the other hand, an insurer that disputes many claims can create friction and dissatisfaction. Find a balance by choosing an insurer known for fair and efficient claims processing.

Certificates from Subcontractors

If you use subcontractors, collect certificates of workers’ compensation insurance from them. Insurance carriers often charge general contractors for any subcontractors not covered by their own policies. By ensuring your subcontractors have proper coverage, you can avoid these additional premiums.

Safety Programs

Implementing a safety program can significantly reduce your workers’ compensation costs. Many states offer discounts for businesses that have robust safety protocols in place. A good safety program might include:

  • Written safety policies and rules: Clear guidelines help prevent accidents.
  • Safety inspections: Regular checks can identify potential hazards before they cause harm.
  • Preventative maintenance: Keeping equipment in good working order reduces the risk of accidents.
  • Safety training: Educating employees on safe practices is crucial.
  • First aid: Having first aid readily available can mitigate the severity of injuries.

By focusing on these areas, you can manage and reduce your workers’ compensation costs effectively. This proactive approach not only saves money but also creates a safer workplace for everyone.

Next, let’s address some common questions about workers’ compensation insurance premiums.

Frequently Asked Questions about Workers’ Compensation Insurance Premiums

Are Workers’ Compensation Premiums Deducted from Employee Paychecks?

No, workers’ compensation premiums are not deducted from employee paychecks. The employer is fully responsible for paying these premiums. Workers’ compensation is a type of insurance that covers employees in case of work-related injuries or illnesses.

Employers pay the premiums to either a state-run program or a private insurance company. This ensures that employees receive the necessary medical care and wage replacement without having to bear any cost themselves.

What Factors Influence the Cost of Workers’ Compensation Premiums?

Several factors determine the cost of workers’ compensation premiums:

  • Payroll: The total payroll of a company directly impacts the premium. For example, businesses in California might pay an average of 40 cents for every $100 in payroll for low-risk jobs.

  • Industry Classification: Jobs are classified based on their risk levels. High-risk jobs, like construction, have higher premiums compared to low-risk jobs, like office work.

  • Claims History: A company’s history of workers’ compensation claims affects its premiums. More claims typically result in higher costs.

  • State Laws: Each state has its own regulations and rates for workers’ compensation insurance. For instance, New York’s average cost for high-risk jobs is $29.93 per $100 in payroll.

Can Employers Reduce Their Workers’ Compensation Premiums?

Yes, employers can take several steps to reduce their workers’ compensation premiums:

  • Proper Employee Classification: Ensure that employees are correctly classified according to their job duties to avoid penalties and retroactive charges.

  • Safety Programs: Implementing safety programs can reduce workplace injuries, lowering premiums.

  • Claims Handling: Choose an insurer with effective claims handling practices. This can help manage costs by avoiding unnecessary payouts.

  • Subcontractor Certificates: Collect certificates of workers’ compensation insurance from all subcontractors to avoid being charged for their coverage.

By following these strategies, employers can manage and potentially reduce their workers’ compensation insurance costs.

Next, let’s explore the various options available for acquiring workers’ compensation insurance.


At ISU Armac, we understand that navigating the complexities of workers’ compensation insurance can be daunting. Our goal is to provide customized solutions that meet the unique needs of your business. Whether you’re a small family-owned company or a large corporation, we have the expertise to help you find the right coverage.

Customized Solutions

Every business is unique, and so are its insurance needs. At ISU Armac, we tailor our workers’ compensation insurance plans to fit your specific requirements. We take into account your industry, payroll, and claims history to offer the most cost-effective solutions. Our team of experts works closely with you to ensure that you are fully covered without breaking the bank.

Support for Businesses

We are committed to supporting businesses every step of the way. From helping you understand who pays the workers compensation insurance premiums to assisting with claims handling, we offer comprehensive support. Our services include:

  • Detailed Consultations: We provide in-depth consultations to help you understand your insurance needs and options.
  • Claims Assistance: Our team is available to assist you with claims, ensuring that the process is smooth and efficient.
  • Ongoing Support: We offer continuous support to help you manage and adjust your insurance policies as your business evolves.

For more information on how we can help you with your workers’ compensation insurance needs, visit our Workers’ Compensation Insurance page.

By partnering with ISU Armac, you can focus on what you do best—running your business—while we take care of your insurance needs.