How Are Workers' Compensation Rates Calculated?


Quick Answer

Each state determines its own workers' compensation rate schedule, and most states calculate the rate to equal two-thirds of the employee's weekly wage up to the minimum amount set by law, says the Houston Chronicle. Workers' compensation is not subject to tax and is not meant to replace a worker's full wages.

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Full Answer

When a claim is filed, the insurance company usually performs a review of the employee's report of injury and determines if the claim may be accepted and if the employee has met the established waiting period. After the claim is approved, a percentage of the employee's wages is calculated to determine the weekly benefit amount. Weekly benefits are not subject to takes, says the Houston Chronicle. The insurance company also determines if the employee is entitled to permanent disability, which is calculated separately from workers' compensation.

Workers' compensation insurance premiums are calculated according to the classification of each employee. Those calculations also take into account the type of work the workers perform, says Prime Pay. In most states, the National Council on Compensation Insurance determines the experience modification factor as well as the classification rate. There are three factors that come into workers' compensation premiums: the size of the employer's payroll, the company's claims experience and the employee job classification.

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