On what basis is workers' compensation coverage rated?

Workers' compensation coverage is primarily rated based on the employer's payroll. This is because the insurance premium is calculated as a percentage of the total payroll, which takes into account the size of the workforce and the associated risk of injury within specific job classifications. Higher payroll typically results in a higher premium, reflecting the greater exposure to potential claims.

This approach aligns directly with the principle that the more employees an organization has and the more they earn, the greater the potential for work-related injuries, necessitating comprehensive coverage. Thus, employers with larger payrolls may be seen as having increased exposure and risk, leading to a corresponding increase in their workers' compensation premiums.

While factors like the number of employees, industry type, and hours worked can influence risks and may be used as part of the underwriting process, the central metric for calculating the actual rate is the payroll figure. This allows for a more equitable distribution of risk and ensures that premiums reflect the potential cost of claims.