- Workers’ comp for one employee often costs a few hundred dollars per year, but it can be more or less depending on your situation.
- Your industry risk, state, payroll amount, and claims history drive your rate.
- Many states require workers’ comp even if you have just one employee.
- You’ll usually pay a rate per $100 of payroll (e.g., $0.75 to $2.74 per $100 depending on the job).
- For your exact cost and legal requirements, you need a quote from a licensed insurance provider in your state.
What is workers’ compensation insurance?
Workers’ compensation insurance (workers’ comp) helps cover medical bills, lost wages, and related costs if an employee is injured or becomes ill because of their job.
In exchange, employees usually give up the right to sue you for most workplace injuries. Most states require that employers obtain workers’ comp.
Do you need workers’ comp for just one employee?
Many states require workers’ comp if you have a single employee.
Rules vary by state, but:
- Some states require coverage as soon as you hire your first employee.
- Others allow up to a certain number of employees before coverage is required.
- Some states treat family members or part-time workers differently.
- A few states have special rules for sole proprietors, partners, and LLC members.
Understand workers’ compensation exemptions by state to stay on top of rules and requirements.
How workers’ comp costs are calculated
Workers’ comp premiums are usually based on a simple formula:
Premium = (Payroll / 100) x Class Code Rate x Experience Factor (if any)
How to calculate workers’ comp:
- Divide payroll costs by 100
Your insurance carrier will look at annual payroll for your employee(s).
For example:
– Employee earns $40,000 per year
– Payroll for rating purposes = $40,000
– For rating, they treat that as $400 units of $100 payroll ($40,000 / 100) - Find your class code rate
Every job is assigned a classification code (class code) that reflects its risk level:
– Lower risk (office workers, sales, clerical) = lower rate
– Higher risk (construction, manufacturing, landscaping) = higher rateYour rate is usually expressed as dollars per $100 of payroll. For example:
– Office worker: $0.20 per $100 payroll
– Retail worker: $0.50 per $100 payroll
– Construction worker: $5.00+ per $100 payroll - Factor in your state and location
States set their own rules and often influence the rates. Some states run workers’ comp through state funds. Others allow private insurers to compete. Costs differ based on local medical costs, wage levels, and regulations.
Even within the same industry, the same employee can cost more or less to insure depending on the state.
- Factor in your experience factor
For brand-new, very small employers, you might not have enough history to get a special adjustment.
Over time, fewer claims means a lower rate and more frequent or serious claims equal a higher rate.
How much does workers’ comp cost for one employee?
According to ERGO NEXT, the lowest premium for workers’ comp insurance starts at $14 per month.
Workers’ comp costs vary widely by state, industry, and payroll. Let’s take a look at a few examples without experience factors.
Example 1: Low-risk office employee
- Job: Administrative assistant (low risk)
- Annual payroll: $40,000
- Sample rate: $0.45 per $100 of payroll
Using the workers’ compensation formula, the cost of workers’ comp for this employee would be $180 per year, or $15 per month.
Premium = ($40,000 / 100) x $0.45
Premium = $180 per year
Example 2: Higher-risk construction employee
- Job: Carpenter
- Annual payroll: $50,000
- Sample rate: $7.00 per $100 of payroll
Using the workers’ compensation formula, the cost of workers’ comp for this employee would be $3,500 per year, or $291.67 per month.
Premium = ($50,000 / 100) x $7.00
Premium = $3,500 per year
Factors that can increase or decrease your cost
Here are some common levers that move your premium higher or lower:
| Factors That Can Increase Your Cost | Factors That Can Decrease Your Cost |
|---|---|
| High-risk jobs (e.g., roofing, heavy construction) | Low-risk roles (office, remote, clerical) |
| Operating in a higher-cost state | Operating in a lower-cost state |
| Past injury claims | Clean claims history |
| Safety issues | Strong safety training and written policies |
How billing usually works for one employee
Even with just one employee, most insurers use similar billing approaches:
- Estimate annual payroll: You estimate what you’ll pay your employee over the year.
- Carrier calculates your premium: They apply the rate per $100 of payroll.
- Pay monthly, quarterly, or annually: Some carriers offer “pay-as-you-go” workers’ comp, where your premium is based on actual payroll each pay period.
- Year-end audit: The insurer reviews your actual payroll and job classifications. If you overpaid, you may get a refund or credit. If you underpaid, you may owe the difference.
Accurate payroll records are key to workers’ comp premium payments.
Simple workers’ comp cost checklist for one employee
Use this checklist to get ready for a quote:
| What You Need | Why It Matters |
|---|---|
| Your state and business location | Determines legal requirements and base rates |
| Exact job duties for the employee | Helps assign the correct class code |
| Estimated annual payroll | Used to calculate the premium |
| Any previous claims (if applicable) | Affects your experience factor over time |
Gather these details before applying for workers’ comp coverage to get an accurate quote.
Frequently asked questions
Workers’ comp cost depends on your state, industry, employee’s job duties, and payroll. Low-risk jobs (e.g., office) may cost as low as around $200 per year, while higher-risk jobs (e.g., construction) can cost thousands per year.
Many states require workers’ comp as soon as you hire your first employee, while other states have a higher threshold (e.g., three employees). Always check your state’s rules or speak with a legal or insurance professional.
To help manage your costs, shop around for coverage and emphasize safety training to help avoid accidents. Consider enrolling in pay-as-you-go workers’ comp so costs are based on actual payroll.
Penalties vary by state but can include fines, stop-work orders, and potential liability for medical bills and lost wages if an employee is injured.
First, check if your state is a monopolistic state (ND, OH, WA, WY) that requires you buy from a state fund. If not, you can shop around for coverage.
Use payroll software? Check if they integrate with workers’ compensation insurance. If so, get a quote from their partner, and your policy will automatically be set up in payroll.
Patriot’s payroll software offers a free workers’ comp integration with ERGO NEXT. Each time you run payroll, pay-as-you-go premiums are calculated and paid. Get your free trial of Patriot’s payroll today!
This is not intended as legal advice; for more information, please click here.
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