When it comes to workers’ compensation coverage, doing business in the U.S. is far from business as usual. For one, the coverage is mandatory if you want to do business in 49 U.S. states – all but Texas. It’s required of every industry, regardless of the level of risk and sometimes even if you only employee a single worker. 

But even beyond that, the two biggest differences between Canadian and U.S. workers’ compensation programs are: U.S. workers’ compensation policies aren’t government owned or operated, nor is there a one size fits all policy. In the U.S., only private insurers issue workers’ compensation policies, not the government. This means businesses must procure a workers’ compensation policy from a third-party broker, or insurance company. Secondly, each state has its own rules impacting coverage costs. This means businesses are required to have a different policy for each state they do business in. 

These nuances and more have created a complex workers’ compensation system, especially for Canadian companies planning on doing business in the U.S. Understanding the variables that affect your U.S. workers’ compensation premium rate and how to proactively lower it will help simplify it.  

Three factors affect your workers’ compensation premium rate

While the details will vary by state, all U.S. workers’ compensation premium rates are calculated based on your business’ payroll, employee classifications and the Experience Modification Factor (EMR or Experience Mod). The equation will look something like this: 

Payroll x Employee Classification code x Experience Mod = Premium 

  • Payroll. This calculation is based on the number of employees you have, specifically on your estimated payroll per $100 for the upcoming year. 
  • Employee classification. Employees are classified according to the amount of risk associated with their job. The riskier the job tasks, the higher the workers’ compensation classification code. For example, a receptionist has a lesser chance of sustaining a work-related injury than a construction worker, and therefore, a lower classification code will apply to receptionists. Codes will vary by state. 
  • Experience Mod Factor. The Experience Mod formula varies by state, but is always based on a combination of your last three full years of workers’ compensation claims, lawsuits and payroll (not including the most recent year), as compared to that of your industry peers. Businesses with more claims and workers’ compensation-related lawsuits will have a higher “MOD.”

It’s possible to proactively lower your U.S. workers’ compensation premium

The U.S. workers’ compensation rate equation is set to allow motivated employers to proactively lower their costs. 

Engaging in enterprise-wide risk management, including injury prevention and an effective return-to-work program, is one way to significantly alter your Experience Mod Factor, which will directly impact your premium rate. 

Keeping employees happy and healthy will minimize workers’ compensation claims, as these workers are less likely to get injured. When workers feel their needs are being met in salary and or benefits, fraudulent claims will be minimized as well. 

Contact your HUB cross border worker’s compensation expert, who understands both your Canadian company and the nuances of the U.S. workers’ compensation climate, to help you procure the best policy for your needs and budget.