Getting workers’ compensation insurance typically involves choosing a buying channel, gathering your business and payroll details, and requesting quotes from one or more carriers. The process can take as little as a day for a small business with straightforward operations, though larger or higher-risk companies may need more time. Here’s how to navigate each step.
Check Whether Your State Requires It
Almost every state requires businesses with employees to carry workers’ comp coverage, but the rules differ on when the mandate kicks in. Some states require coverage as soon as you hire your first employee, even if that person is part-time or a family member. Others set the threshold at three, four, or five employees. A handful of states exempt certain categories of workers, such as agricultural laborers or real estate agents paid solely on commission.
Even if your state doesn’t technically require coverage for your situation, carrying it is often a smart move. Without a policy, you’re personally liable for medical bills, lost wages, and legal costs if an employee gets hurt on the job. Some clients and contracts also require proof of coverage before they’ll work with you.
Understand Your Buying Options
There are several ways to purchase a policy, and the right one depends on your business size and location.
- Private insurance carriers: Most businesses buy coverage from a private insurer. You can go directly to a carrier’s website, call their sales team, or work through a licensed insurance agent or broker. An independent agent can shop multiple carriers on your behalf, which is useful if your industry carries higher risk or your claims history is complicated.
- State-run funds: Four states (Ohio, North Dakota, Washington, and Wyoming) operate monopolistic state funds, meaning you must buy your policy from the state rather than a private insurer. Puerto Rico and the U.S. Virgin Islands also require coverage through their own state funds. In all other states, you typically have the choice of private carriers, and some states run a competitive state fund that operates alongside private options.
- Assigned risk pools: If private carriers decline to cover your business because of a poor claims history or a high-risk industry, your state’s assigned risk pool (sometimes called the “employer of last resort”) will issue a policy. Premiums are usually higher, but it guarantees you can get coverage.
- Professional Employer Organizations (PEOs): A PEO co-employs your workers and bundles workers’ comp into a package that also handles payroll, HR, and benefits. This can simplify administration for small businesses, though you give up some control over carrier selection.
How Premiums Are Calculated
Understanding the pricing formula helps you anticipate costs and find ways to lower them. Workers’ comp premiums are built from three main inputs.
Class codes. Every job role is assigned a three- or four-digit classification code based on its injury risk. An office administrator and a roofer work for the same company but fall into very different codes. Insurers use the historical loss data associated with each code to set a base rate per $100 of payroll. The riskier the code, the higher the rate.
Payroll size. The base rate is multiplied by your total payroll for employees in each class code. More employees or higher wages means a larger premium. This is why accurate payroll estimates matter when you apply: if you underestimate, you’ll owe more at audit time.
Experience modification rate. Often called an “experience mod” or “e-mod,” this is a multiplier that reflects your company’s claims history compared to similar businesses. A mod of 1.0 is average. If your claims are lower than expected, your mod drops below 1.0 and you pay less. A history of frequent or severe claims pushes the mod above 1.0, increasing your premium. New businesses without enough claims history typically start at 1.0.
State laws also affect pricing. Each state regulates what benefits injured workers receive and sets its own rules on rate filings, so the same business operating in two different states could see meaningfully different premiums.
Information You’ll Need to Apply
When you request a quote, insurers will ask for several pieces of information. Having these ready speeds up the process:
- Federal Employer Identification Number (FEIN)
- Business entity type (LLC, corporation, sole proprietorship, etc.)
- Industry description and class codes (the insurer can help identify the right codes if you’re unsure)
- Annual payroll broken down by job role
- Number of employees
- Claims history for the past three to five years
- Business start date and any prior coverage details
If you’re a brand-new business with no prior claims, the application is simpler. You’ll still need accurate payroll projections, because the insurer will audit your actual numbers at the end of the policy period and adjust your premium accordingly.
Steps to Get Your Policy
Once you’ve gathered your information, the process is fairly straightforward:
- Get multiple quotes. Request quotes from at least two or three carriers, or work with an independent agent who can do this for you. Compare not just premium prices but also the insurer’s claims handling reputation and any available discounts for safety programs.
- Review the policy details. Confirm the class codes are correct, check whether the policy covers all the states where your employees work, and understand the audit process at the end of the term.
- Pay the deposit and bind coverage. Traditional policies often require a down payment of around 25% of the estimated annual premium, with the remainder paid in monthly installments. Once you pay and the insurer binds the policy, coverage is active.
- Post required notices. Most states require you to display a workers’ comp notice in a visible area of your workplace. Your insurer will typically provide the poster or direct you to where you can download one.
Consider Pay-As-You-Go Billing
Traditional workers’ comp bills you based on estimated payroll, which can create cash flow headaches. If your headcount fluctuates seasonally or you’re a new business unsure of your hiring pace, a pay-as-you-go plan may be a better fit.
With pay-as-you-go, your premium is calculated each pay period based on actual payroll rather than annual projections. The workers’ comp charge is bundled into your regular payroll run, so you pay one combined bill to your payroll provider. This means your premiums automatically adjust when you add or lose employees. The year-end audit is also less likely to produce a surprise bill, since you’ve been paying on real numbers all along.
The tradeoff: pay-as-you-go still requires some upfront payment, just less than a traditional plan’s 25% deposit. Not every insurer or payroll service offers this option, so you’ll need to confirm availability with both your carrier and payroll provider before committing.
What Happens After You’re Covered
Your responsibilities don’t end once the policy is in place. At the end of each policy period (usually 12 months), the insurer conducts a premium audit. They’ll compare the payroll figures you estimated at the start of the term against your actual payroll records. If your real payroll was higher than projected, you’ll owe additional premium. If it was lower, you’ll get a credit.
Keeping clean payroll records organized by job classification throughout the year makes audits painless. It also helps to notify your insurer whenever you add new types of work or hire employees in roles that fall under different class codes, since misclassified employees can trigger penalties or coverage gaps.
If an employee is injured, report the claim to your insurer as quickly as possible. Most states set strict deadlines for employers to file injury reports, and delays can result in fines. Your insurer handles the claims process from there, covering the employee’s medical expenses and a portion of lost wages as defined by your state’s benefit schedule.