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What factors determine the rates for worker's compensation?

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Quick Answer

The level of industry is a major determinant of how worker’s compensation is calculated; low-hazard industries pay less in premiums as compared to high-hazard industries, states OSHAcademy. Companies that have high safety standards and low levels of claims typically pay less in premiums.

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Full Answer

To differentiate high-hazard industries from low-hazard industries, The National Council on Compensation Insurance, or NCCI, is mandated to keep statistics relating to such industries. Every claim record kept by insurance carriers is submitted to NCCI at the end of every policy year. These statistics are used to determine classifications, experience modifiers and rates, explains OSHAcademy.

Factors considered first when determining the rates of worker’s compensation are classifications and relevant manual rates. Different industries are given different classification codes based on risk levels. High-hazard industries such as roofing and logging pay higher manual rates than low-risk industries such as restaurant and clerical businesses. A classification code can be used to distinguish an entire industry or just a segment with the industry, states OSHAcademy.

The three major factors that affect worker’s compensation premiums are manual rates, company payroll and experience modifiers. To reach a manual premium, manual rate is multiplied by a company’s payroll. An experience modifier rated at one means if a company makes a loss, it is still expected to pay 100 percent of the manual premium as earlier expected. A claim with figures beyond 100 percent means the company must pay that percentage of manual premium, explains OSHAcademy.

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