How Are Workers’ Comp Premiums Calculated? The Formula, in Plain English
6 min read · Updated June 20, 2026
Workers’ comp can feel like a number the carrier makes up. It isn’t — it’s a formula, and once you can read it, you can see exactly where your money goes and which parts you can move. Here it is in plain English.
The core formula
For each kind of work you do, premium is roughly:
(Payroll ÷ 100) × class rate × experience mod
Add up every class of work, apply a few adjustments, and that’s your premium. Let’s take the pieces one at a time.
Payroll — priced per $100
Rates are quoted “per $100 of payroll.” So $200,000 of payroll at a $10 rate is 2,000 × $10 = $20,000. This is why payroll accuracy at audit matters so much — and why an uninsured subcontractor’s pay getting added to your payroll is so expensive.
Class rate — set by the kind of work
Each trade has a class code with its own rate, and the spread is huge — high-risk work like roofing can cost many times what clerical work does. Get coded wrong and every dollar of payroll is multiplied by the wrong number.
Experience mod — your safety multiplier
Your experience modification factor (EMR) compares your claims history to businesses like yours. 1.0 is average; below 1.0 earns a discount, above 1.0 a surcharge. A 1.20 mod adds 20% to the entire premium — so this single factor is one of the biggest levers you control.
The smaller adjustments
- Schedule credits/debits — carrier adjustments for risk factors.
- Expense constant — a small flat fee added to most policies.
- Minimum premium — the floor every policy pays regardless of size.
Estimate now, true-up later
At the start of the year all of this runs on estimated payroll. The premium audit recalculates it on your actual numbers — which is why the audit can produce a bill or a refund.
The levers you actually control
You can’t change the state rate, but you control payroll accuracy, correct classification, your experience mod, and whether uninsured subs inflate your payroll. See how those numbers drive your exposure with the free calculator →
General information for contractors, not insurance advice. Rating rules and factors vary by state and carrier — confirm yours.
Frequently asked questions
How is workers’ comp premium calculated?
Roughly: payroll divided by 100, times your class rate, times your experience mod, plus small charges like the expense constant and any minimum premium.
What is the biggest factor in my workers’ comp premium?
Your class code — the kind of work — sets the rate and varies enormously by trade. After that, your payroll and experience mod move the number most.
Why did my premium change at the audit?
The starting premium uses estimated payroll. The audit recalculates on your actual payroll and subcontractors, so the final figure can go up or down.
See your own exposure — free
Two free tools, no signup: estimate your audit surprise, and check whether your subs’ COIs actually protect you.
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