Taking the Mystery Out of Workers Compensation Insurance Premiums

Introduction: Understanding How Your Premium Is Calculated

Have you ever reviewed your Workers Compensation (WC) invoice and wondered how the insurance company calculated the final premium?

Workers Compensation pricing is not random. It is based on a combination of factors, including:

• Payroll by job classification
• Industry injury risk rates
• Your lab’s loss history compared to the national industry average

Understanding how these elements work together can help you better manage your insurance costs.

The Basic Premium Formula

To simplify the process, here is the core formula used to calculate Workers Compensation premiums for a dental laboratory:

Premium = (Job Classification Rate × Payroll) × Experience Modification Factor

Let’s break down each component.

Experience Modification Factor (Experience Mod)

Your Experience Modification Factor (EMR) is a multiplier that reflects how your laboratory’s Workers Compensation claims compare to the industry average over the past three years.

• If your losses are lower than average, your mod will be below 1.00 (or below 100) — reducing your premium.
• If your losses are higher than average, your mod will be above 1.00 (or above 100) — increasing your premium.

For eligible businesses (typically those paying more than $5,000 annually in WC premium), the Experience Modification is calculated by the Workers Compensation Insurance Rating Bureau.

Important Tip:

Your Experience Mod can impact your premium by as much as 60%.
Monitoring open claims and reserve amounts is critical to controlling long-term insurance costs.

Payroll: Estimated vs. Actual (Audit Process)

One of the most misunderstood — and often disliked — parts of Workers Compensation is the payroll audit.

Estimated Payroll

At the beginning of the policy period, your premium is based on an estimated payroll for each job classification.

Actual Payroll (Audit)

At the end of the policy period, an audit is conducted to determine the actual payroll.

This audit may involve:

• Completing audit paperwork
• Meeting with an auditor
• Providing payroll tax reports (Form 941 filed with the IRS)

The insurer compares your estimated payroll to your actual payroll:

• If actual payroll is higher → you receive an additional bill
• If actual payroll is lower → you receive a return premium

Tip:

If you prefer to avoid large audit adjustments, ask your carrier about a Pay-As-You-Go Workers Compensation plan, which bases premiums on real-time payroll reporting.

Job Classifications and Rates in a Dental Laboratory

Workers Compensation rates vary based on job risk exposure.

The two most common classifications in dental laboratories are:

1. Dental Laboratory Technician (Code 4692)

This classification carries a higher rate because technicians:

• Use manufacturing equipment
• Work with grinding, casting, heating tools
• Perform repetitive tasks
• Face greater risk of physical injury

Because of these exposures, technician classifications generally have higher WC rates.

2. Clerical (Code 8810)

Clerical employees typically have lower risk exposure.

While office staff may experience ergonomic-related injuries (such as carpal tunnel), improved workstation ergonomics have reduced claims frequency. As a result, this classification carries a much lower WC rate.

Classification Strategies to Reduce Premium

Some dental laboratories may be able to classify certain digital scanning or data input employees under the clerical category — potentially reducing Workers Compensation premiums.

However, strict requirements apply:

• Clerical employees must not be exposed to manufacturing hazards.
• They must work in physically separate areas (separate building, floor, or partition).
• Carrier guidelines must be met.

Each insurance carrier may interpret classification rules differently.

Recommendation:

Consult your insurance agent or carrier to determine whether your digital team qualifies for clerical classification.

Frequently Asked Questions

Why did my Workers Compensation premium increase this year?

Premium changes are usually driven by:

• Increased payroll
• Higher Experience Modification
• Rate changes within your job classifications

How long does my claims history affect my premium?

Your Experience Modification typically reflects the prior three years of loss experience.

Can I control my Workers Compensation costs?

Yes. Key strategies include:

• Proactive safety programs
• Managing open claims
• Reviewing classification accuracy
• Monitoring payroll estimates

Is the audit mandatory?

Yes. Workers Compensation policies are auditable by design. However, Pay-As-You-Go options may reduce large adjustments.

Take Control of Your Workers Compensation Costs

Workers Compensation premiums do not have to be confusing. By understanding payroll reporting, job classifications, and your Experience Modification, you can better manage and even reduce your insurance costs over time.

Being proactive today can prevent unexpected premium increases tomorrow.