Worker's Compensation Insurance Premium Estimation: How It's Done

Workmen's compensation policy premium is the sum (amount) paid by an employer to the insurance company to provide coverage to the employees for job injuries and illnesses. The premium of the workmen’s compensation policy online is calculated as a percentage of the employee's payroll.

If you are wondering why it is important to estimate the premium, let us list a few reasons:

1. An employer needs to estimate the premium for the workmen’s compensation policy as it is the cost that the company must bear. The exact cost of the premium depends on several factors and may vary from one employer to another.

2. Once the employer knows the cost, it is easier to create a reserve for the same and dedicate the amount towards paying the WC policy premium.

3. All the states in the country require an employer to provide workmen's compensation to the employees. However, each state has a separate set of regulations that may affect premium rates. Thus, the employer must take into consideration the regulations and determine the premium cost accordingly.

4. The company's claim history also influences the workmen’s compensation premium calculation. A company with a frequent claim history may pay a higher premium than one with a less frequent claim history. Hence, the employer must calculate an estimated cost of the premium in advance.

5. WC premium estimation is also necessary as this insurance assists employers in covering the cost of lost wages, medical expenses and other costs related to the injury at the workplace.

The calculation of the WC policy premium is done using a formula that considers multiple factors, such as the classification code, the rate for the classification code and the employee’s payroll. The calculation process is as follows:

Determine the Classification Code

The WC policy premium calculator considers the classification code assigned to the business to estimate the premium amount. Classification codes play a pivotal role in determining premium rates, and they are assigned based on the nature of the business.

Each code classifies the job into risk categories that influence the premium. Jobs with higher risk factors have higher premium rates and those with lower risk have a lower premium.

Applying the Rate for Classification Code

Once you know the classification code for a particular business or job, you must look at the corresponding rate. The rate must be applied to the employee's payroll.

Arriving at the Premium Cost

To arrive at the premium cost, you must multiply the resulting premium rate by the employee’s payroll.

To sum up, WC policy premium = Classification Code Rate x Payroll x Premium Rate.

Apart from the classification code and claim history, several factors affect the workmen’s compensation insurance premium. It is essential to understand these factors in order to determine the insurance premium.

Business Classification

Business classification is one of the most pivotal factors influencing the WC premium amount. Businesses may belong to different industries with varying levels of risk. Based on the amount of risk factor in a business, the premium amount is affected.

State Regulations

Different states may have varying regulations for workmen’s compensation insurance. Employers must comply with the state regulations as per the place of operation to arrive at an accurate premium estimation.

Employee Job Type

Employees in an organisation have different roles to perform. An employee's job classification has a huge impact on the premium of WC insurance. For instance, a worker who performs administrative tasks is at lesser risk than a worker working at a factory. Thus, the premium rates differ based on the employee classification.

Payroll

Payroll is yet another pivotal factor that determines the insurance premium. It has a direct correlation with the potential exposure to workplace injury. Also, an employer who pays a higher payroll stands a higher chance of receiving a claim from the employees. Thus, the premium for such employers is higher than those with less payrolls.

Job Location

The location of the business also determines the rate of insurance premiums. Since every state has different regulations and fees for workmen’s compensation policy, it may influence the premium cost.

Preserving the health and wellness of employees is crucial for every organisation, as they are a valuable asset. Since workplaces involve significant risk, especially in certain industries, workmen’s compensation insurance becomes an integral part for the following reasons:

Ensure Employee Safety

The primary purpose of workmen’s compensation insurance is to protect the employees at their workplace. Certain workplaces, such as factories, mining industries, etc., pose a risk to the worker's health and safety. Thus, a worker’s compensation insurance provides workplace safety by taking care of the employees if they suffer from injuries at the workplace.

Support Employee and His Family

If any workplace accident occurs and the employee suffers an injury, disability or death, the workmen’s compensation insurance supports him and his family. The insurance provides financial support for treatment expenses, rehabilitation costs, lost wages, death compensation, etc.

Protect the Employer

Workmen’s compensation policy also protects the employer and the organisation. It provides a resolution for compensation in case of workplace accidents, which safeguards the employer from spending huge amounts if an employee files a suit in case of a workplace accident or injury.

Mitigates Financial Risk

Workmen’s compensation fund also mitigates financial risk for the employer and the employee. The WC insurance assists the employer in adequately compensating the employees after a workplace accident. It protects the company from sudden financial burden.

Similarly, it provides a safety net to the employees and offers them financial support to meet the medical expenses and compensates the family in case of employee death.

Allow Legal Compliance

Workmen’s compensation insurance is mandatory for businesses belonging to specific industries. Thus, opting for this insurance allows the employers to comply with the legal requirements. It also safeguards the company from any legal consequences.

Workmen’s compensation insurance premium calculation is essential for various reasons. Employers who want to purchase insurance must calculate the premium using the workmen compensation policy premium calculator so they are aware of the cost to the company.

Another crucial thing is to opt for a trustworthy insurance provider such as TATA AIG for an SME insurance policy. Our experience and expertise in the insurance industry enable us to provide reliable business protection and secure you from financial losses.

Businesses that want to secure their employees can rely on TATA AIG to safeguard their employees with a workmen’s compensation policy. We offer affordable insurance plans that cover injuries, disabilities, and death due to workplace accidents.

Our buying and claim processes are simple and quick. With us, you also have the option to enhance the insurance by including add-ons, such as medical extension, terrorism cover and subcontractors cover.

• How much compensation is payable under workmen's compensation for temporary disabilities?

  As per section 4 of the Workmen’s Compensation Act 1923, the compensation for temporary disability is up to 25% of the employee's monthly wages.

• What is the compensation for permanent total disability under the worker’s compensation policy?

  If an employee suffers permanent disability, he is entitled to compensation of 60% of their monthly wages or ₹1,20,000, whichever is higher.

• How much compensation does a deceased employee receive under the workmen’s compensation policy?

  If an employee's death occurs due to an accident at the workplace, his dependents are entitled to compensation of 50% of the monthly wages or ₹1,20,000, whichever is higher.

• Which employees are covered under workman's compensation insurance?

  Workers in the following industries are covered under the WC scheme:

  • Aviation workers

  • Railways employees

  • Automobile workers

  • Labours employed in foreign countries

  • Construction and industrial workers (construction sites, mines, docks, factories, etc.)