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How is Workers’ Comp Insurance Calculated in Construction?

It’s important for contractors in the construction industry to understand the factors that go into calculating their workers’ compensation insurance costs.

Jobsite Safety
Workers’ Comp
Reducing Risk

If you’ve worked on a large construction project, you’re likely well aware of how essential a workers’ compensation insurance policy is to protect your workers and, in some cases, the company itself.

These policies are particularly important within our labor-intensive industry, where the risk of workplace injury is significantly more pronounced:

  • In 2020, there were more than 174,000 cases of injury reported within the construction industry.
  • Nonfatal workplace falls–one of the leading causes of injury on construction sites–result in ~$2.5 billion on an annual basis. 
  • Nearly one in five worker fatalities occur on construction sites each year–a rate that is nearly 24% higher than in any other sector, and which costs the U.S. about $5 billion in lost wages and health care costs.

While major injuries can be incredibly costly, especially in cases where litigation occurs, even a minor workplace injury can create significant financial burdens and logistical challenges for you, your employees, and the company at large. That’s why having a workers’ compensation insurance policy is an essential–albeit expensive–aspect of any successful jobsite.

How are workers’ compensation insurance policy costs determined?

The amount your company must pay for workers’ compensation is a custom rate based on every $100 of your business’ payroll. To determine your premium, the insurance company will take the following into account:

  • The classification rate (or class code) for your employees, which is based on the type of work they perform. For example, the classification rate for a roofer (class code 5545) in New York is $25.23.
  • Your experience modification rate (also known as your MOD), which is a numeric representation of your organizations’ claim history in relation to similar businesses in your sector. (1.00 is considered an average MOD, and companies with less insurance claims and accidents will have a MOD lower than 1.00.)
  • Your payroll (per $100)
  • State-specific taxes and fees

Do workers’ comp requirements vary from state to state?

While The National Council on Compensation Insurance (NCCI) determines the classification codes and MOD rate in most states, each state maintains its own regulations and penalties around workers’ compensation. Most states do enforce stricter requirements for businesses in the construction industry. 

What happens if my company doesn’t have workers’ comp insurance?

Again, this varies from state to state. In New York, for example, failure to secure coverage for five or fewer employees within a one-year period is considered a misdemeanor, and the offending company could be fined between $1,000-$5,000. For companies with more than five employees, the offense is upgraded to a felony, and the corresponding fine is increased to $5,000-$50,000. Failure to maintain accurate records around your payroll, including number of employees, classifications, wages, and incidents, is also considered a criminal offense.

How can my company lower its workers’ comp costs?

The best way to reduce your company’s workers’ comp costs is to avoid costly insurance claims which can raise your future premiums. Stakeholders in the construction industry have a few options for reducing the risk of injury on their job sites:

  • Offer comprehensive training on a regular basis. A thoughtfully-designed training program can engrain safe habits and encourage best practices among your workforce. 
  • Reduce hazards on the site. This may seem obvious, but regular safety checks on the job site can help your team mitigate dangerous hazards and minimize safety incidents.
  • Provide your workers with the appropriate safety gear. From safety goggles to gloves and hard hats, arming your workforce with the right protective gear can save lives and, less importantly, dollars.

How can Odin help lower my workers’ comp costs?

Odin is making construction safer with the power of data. Our construction software platform and proprietary technology can improve safety and reduce risk on your site in a number of ways, including:

  • Automatically enforcing compliance, alerting you when a worker’s credentials have expired or they are due to complete a training 
  • Ensuring that only qualified workers are allowed on your job site 
  • Improving the accuracy of your payroll data, which reduces the risk of over-reporting your labor and overpaying for your insurance

The Takeaway

While workers’ compensation insurance is one of the more expensive costs of doing business in the construction industry, understanding how these costs are calculated can help you make smart decisions that will benefit your bottom line in the long run. Finding smart ways to ensure safe practices on your job sites today will prevent accidents, reduce claims, and minimize your costs in the years to come.

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