How are workers' compensation premiums primarily determined?

Workers' compensation premiums are primarily determined by employee payroll because the amount of coverage required is closely tied to the total wages paid to employees. An employer with a larger payroll typically has greater exposure to potential claims simply due to having more employees, thereby increasing the likelihood of work-related injuries or incidents. Therefore, insurance companies assess the payroll figures to calculate the premium, applying the appropriate rates based on industry risk classification and other factors as necessary.

While factors like industry classification, claim history, and asset value can influence the overall premium or the risk assessment, it is the payroll that serves as the primary basis for calculating the actual cost of workers' compensation insurance. The premium represents a percentage of the total payroll for employees classified based on the risk levels of their jobs within that industry. Thus, understanding payroll as the foundation for premium calculation is essential for employers managing their workers' compensation costs.