Like many Harrisburg, PA small business owners, you may find it difficult to understand how your workers’ compensation premiums are calculated. Because workers’ compensation premiums can vary for a variety of reasons, the calculation process can be complex, and inaccurate calculations can result in surprise bills in the future. Henderson Insurance agency has created this basic overview to help shed light on some of the details involved in calculating your workers’ compensation insurance policy premium.
Business Risk Classification
Before your premium is calculated, the insurance company will classify your business based on the industry risk of injury, and then use that classification code to estimate your premiums. If your company engages in a more potentially dangerous industry, such as construction, you will end up with a classification code with higher rates than a business that has less risk, such as customer service.
Annual Payroll Estimate
Once your classification code is set, the insurance company applies the class code rate to your anticipated payroll for the coming year. Because the policy premium is calculated based on projected estimated for the coming year, it is difficult to calculate the premiums exactly. Once your premium is calculated, you are required to make your initial payment.
If you are a small Harrisburg, PA business and your estimated annual insurance premium is less than $1,000, you’ll be expected to pay the entire year’s premium at once. However, if your workers’ compensation premium is more than that, an installment plan may be offered for payment. With an installment plan, you’ll typically be asked for a deposit premium that represents 20 percent of your total estimated premium.
Your workers’ compensation policy expires at the end of the year, and when it does, you’ll need to renew your policy in order to continue your coverage. When your policy expires, the insurance company will still need to continue calculation on your previous policy. Within a month or two of the policy expiration, they will audit your payroll to compare it to your new term estimate. This audit is an obligation of the policy and is required by the State. If your payroll was lower than anticipated, you will receive a return premium, but if it was larger, you’ll be required to pay an additional premium to cover the difference.
For more information about how to plan for your workers’ compensation coverage premiums, or for answers to questions about your policy, contact Henderson Insurance Agency today.