Who Pays for Workers' Compensation Insurance?

Who Typically Pays the Premiums?

In most U.S. states, the employer is legally responsible for purchasing workers' compensation insurance. The premium is added to the employer's payroll costs and is not a direct employee expense. The insurance company, in turn, pays claims for workplace injuries and illnesses.

How the Premium Is Calculated

Premiums are based on a company's payroll, the nature of its work, and its claims history. High‑risk industries—construction, manufacturing, and mining—pay more than low‑risk sectors like office administration. The insurer calculates a rate per $100 of payroll and multiplies it by the company's total wages.

State and Federal Variations

While the employer generally pays, some states provide subsidies or tax credits to small businesses to offset the cost. In a few states, the state insurance fund covers the premiums for certain small employers, but these arrangements are rare. The federal government does not set workers' comp rates; it only provides guidance through the Department of Labor.

Employee Involvement and Cost Sharing

Employees rarely see a direct deduction for workers' comp. In a few joint‑employer situations, such as a partnership or joint venture, each entity may share the premium proportionally. However, the primary responsibility remains with the employer who owns the work site.

What Happens in Case of Disputes?

If an employer refuses to pay the premium, the state workers' compensation board can impose penalties, suspend the employer's coverage, or even levy fines. Employees cannot claim workers' comp benefits without proper coverage, so the employer's non‑payment directly jeopardizes employee protection.