Who Is Responsible for Paying Workers' Compensation Premiums

In most jurisdictions, employers are responsible for paying workers' compensation premiums; employees generally do not pay. Premiums are typically based on payroll, job classification, and the employer's claims history. State or national workers' compensation funds set the rates, and assessments or audits may adjust the final cost. This overview explains how payments work, who bears the cost, and what influences premium calculations.

How Premiums Are Calculated

Workers' compensation premiums are calculated using an experience-rating formula that combines class codes, payroll, and loss history. Each occupation is assigned a class code with a base rate expressed as a cost per $100 of payroll. The formula multiplies the payroll by the rate and adjusts for prior losses and safety discounts.

Key Rate Inputs

• Class code and corresponding base rate per $100 of payroll
• Total covered payroll by classification
• Employer's loss experience and experience modification factor (MOD)
• State fund fees, solvency assessments, and administrative charges

These inputs determine the final premium, which employers must remit to the state fund or a private insurer.

Who Pays and How Payment Works

Employers pay the full premium and cannot pass the cost to employees. Payment schedules vary: some employers pay quarterly or annually, while others may be required to use installment plans if they are self-insured or subject to large assessments. Employers must maintain active coverage to avoid penalties and stop-work orders.

Role of State Funds and Private Insurance

In many states, the workers' compensation fund sets base rates and offers coverage when private insurance is unavailable. Private insurers may provide policies in competitive markets, subject to state approval. Self-insured employers pay directly to cover claims, often with required bonds or trusts to secure obligations.