What workers' comp covers
Workers' comp covers medical care, rehabilitation, and a portion of lost income for employees with work-related injuries or illnesses. It also covers death benefits for dependents in fatal cases. Independent contractors are generally not covered, though misclassification is a frequent and expensive mistake.
How premiums are calculated
Premiums are based on payroll, classification codes that group jobs by injury risk, and an experience modifier that reflects your company's claims history. Office workers are inexpensive to cover; roofers and construction trades are not. An experience modifier above 1.0 increases premium; below 1.0 decreases it.
The annual audit
At the end of each policy period the insurer audits actual payroll and class code assignments. If your payroll grew or work was misclassified, you will owe additional premium. Keeping accurate payroll records by job classification throughout the year prevents painful audit bills.
Key takeaways
- Workers' comp is mandatory in nearly every state for businesses with employees.
- Premiums depend on payroll, class codes, and your experience modifier.
- Misclassifying contractors is a common and costly error.
- Maintain accurate payroll records to avoid audit surprises.
This article is for general educational purposes and is not legal, financial, or insurance advice. Consult a licensed professional for decisions specific to your situation.