Components of Workers' Compensation Premium

The primary components in determining workers’ compensation premium are classification code and remuneration. While these items are the basis of premium, there are a number of additional components used to determine workers’ compensation premium. These additional components enable NYSIF to tailor the workers’ compensation premium to suit the individual character of each employer and are categorized on the Information Page.

Learn more:

Classification Code

Loss Cost Multiplier 

SIF Manual Rate Premium Calculation 

SIF Standard Premium Calculation 

SIF Base Premium Calculation

Remuneration 

Experience Rating 

NYSIF Modification 

New York State Assessment Charge 

Natural Disaster and Catastrophe Premium 

Terrorism Premium 

Minimum Premium 

Classification Code

The first step in determining proper premium for any business is to identify the correct classification code. Classification codes group together businesses of similar types to ensure that business types with a low potential for loss do not pay the same rate as those with a high potential for loss. The classification system designates which types of work pose more risk to the employees performing the tasks. Businesses are classified according to the operations they perform. The main classification, called the governing code, is assigned to the business as a whole. Employers should remember that it is the company's line of business that determines the workers' compensation classification, not the various jobs within that company.

In New York State, the New York Compensation Insurance Rating Board (NYCIRB), an independent, nongovernmental rating authority, promulgates new loss costs each year after an actuarial review of losses and payrolls for each of more than 600 existing classifications. These loss costs are subject to approval by the New York State Insurance Department. There is a different loss cost for each of the 600 different classifications. NYCIRB determines the loss cost to generate sufficient premium to provide sufficient funds to pay compensation and medical benefits. Premiums from policies written during a given year are intended to meet all future claim payments made under these policies.

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Loss Cost Multiplier

The New York Compensation Insurance Rating Board (NYCIRB), an independent, non-governmental rating authority, promulgates new loss costs each year after an actuarial review of losses and payrolls for each of more than 600 existing classifications. The New York State Insurance Department must approve these rates before they become official. In general, the rate applies to each $100 of payroll exposure (in a few cases, other unit bases are used to determine premium, such as per capita, per building location, etc.).

NYCIRB determines the loss cost to generate sufficient premium to provide sufficient funds to pay compensation and medical benefits. Premiums from policies written during a given year are intended to meet all future claim payments made under these policies. Since rates are mathematically based, they produce an objective pricing system.

Workers’ compensation carriers must now develop their own “loss cost multipliers.” These multipliers reflect the individual carrier’s own expenses (not claim expenses which are included in the loss costs). Those expenses include general overhead, business acquisition, taxes, etc. When these loss cost multipliers are added to the loss costs, the actual rate for each classification is computed. This means that each carrier will have a different rate for what was formerly called the “manual rate.” Carriers must file their loss cost multipliers with the Insurance Department for approval.

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SIF Manual Rate Premium Calculation

Where the loss cost for a given classification is based on payroll exposure, the SIF manual rate premium is computed by multiplying the estimated annual payroll by the rate (expressed in dollars and cents per $100 per payroll), which is arrived at by multiplying the approved loss cost by the SIF loss cost multiplier and dividing the result by 100.

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SIF Standard Premium Calculation

The SIF Standard Premium is computed by adding the SIF manual rate premium and the Experience Rating factor.

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SIF Base Premium Calculation

The SIF Base Premium is computed by adding the SIF Standard Premium and the Expense Constant.

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Remuneration

Remuneration is the basis upon which most workers’ compensation premiums are based. Remuneration consists of gross wages, or other compensation, before withholding taxes or other deductions including:

• Retroactive wages or salaries;
• Total cash received by employees for commissions and draws against commissions;
• Bonuses including stock bonus plans;
• Extra pay for overtime work (with some exceptions);
• Pay for holidays, vacations or periods of sickness;
• Payment by an employer of amounts otherwise required by law to be paid by employees to statutory insurance or pension plans, such as the Federal Social Security Act;
• Payment to employees on any basis other than time worked, such as piecework, profit sharing or incentive plans;
• Payment or allowance for hand tools or power tools used by hand provided by employers either directly or through a third party and used in their work or operations for the insured;
• The rental value of an apartment or a house provided for an employee based on comparable accommodations;
• The value of lodging, other than an apartment or house, received by employees as part of their pay, to the extent shown in the insured’s records;
• The value of meals received by employees as part of their pay to the extent shown in the insured’s records;
• The value of store certificates, merchandise, credits or any other substitute for money received by employees as part of their pay;
• Payments for salary reduction, employee savings plans, retirement or cafeteria plans that are made through employee authorized salary deductions from the employee’s gross pay;
• Wages paid to employees as salary in conjunction with the Davis-Bacon Act or other prevailing wage laws;
• Annuity plans;
• Expense reimbursements to employees to the extent that an employer’s records do not substantiate that the expense was incurred as a valid business expense;
• Payment for filming of commercials, excluding subsequent residuals that are earned by the commercial’s participant(s) each time the commercial appears in print or is broadcast.
  

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Experience Rating

The most significant adjustment program in workers’ compensation insurance is the Experience Rating Plan. The Experience Rating Plan recognizes that similar employers may not be similar with respect to safety and losses. The Experience Rating Plan adjusts for those differences by modifying the overall premium paid by the employer. The Experience Rating Plan is administered by NYCIRB, which promulgates an experience modification for all qualified employers.

Generally, all employers with premiums in excess of $5,000 become “experience rated” by NYCIRB. The experience modification is determined by comparing an employer’s actual losses to the expected losses for an employer of similar size in the same industry. This statistical comparison results in the calculation of the experience modification, which is a percentage credit or debit applied to the employer's manual premium.

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NYSIF Modification

NYSIF may apply its own modification of rates by means of a surcharge (differential) or credit (discount), in an attempt to tailor the workers’ compensation premium to suit the individual character of each employer. NYSIF’s modification of rates may be based upon criteria such as:

• Your prior loss experience;
• Your prior premium payment history;
• The nature and hazards of your business;
• Adherence to safe practices in the workplace;
• Compliance with all obligations imposed upon you by the Workers’ Compensation Law, including cooperation on claims matters and premium audits.
  
  

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New York State Assessment Charge

The New York Compensation Insurance Rating Board (NYCIRB) determines the assessment percentage and may change each time there is a general rate revision. This charge covers the costs of operating the Workers’ Compensation Board and special funds such as the Reopened Case Fund, Special Disability Fund and the Special Funds Conservation Committee, as prescribed by law. Effective October 1, 2008, the New York State assessment charge is 5.5% for workers' compensation policies.

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Natural Disaster and Catastrophe Premium

The New York Compensation Insurance Rating Board's Rates Committee has adopted, with the approval of the New York State Insurance Department, a change to the manner in which the premium for domestic terrorism and other catastrophes is charged. Effective September 1, 2008, for new and renewal policies, the domestic terrorism and catastrophe element was removed from the manual rates and replaced by a stand alone charge that is similar in operation to the Terrorism Risk Insurance Act (TRIA) charge for foreign terrorism. 

Catastrophe (other than Certified Acts of Terrorism): Any single event, resulting from an Earthquake, Noncertified Act of Terrorism, or Catastrophic Industrial Accident, which results in aggregate workers' compensation losses in excess of $50 million.

• Earthquake: The shaking and vibration at the surface of the earth resulting from underground movement along a fault plane or from volcanic activity.
• Noncertified Act of Terrorism: An event that is not certified as an Act of Terrorism by the Secretary of Treasury pursuant to the Terrorism Risk Insurance Act of 2002 (as amended) but that meets all of the following criteria:
  • It is an act that is violent or dangerous to human life, property, or infrastructure;
  • The act results in damage within the United States, or outside of the United States in the case of the premises of United States missions or air carriers or vessels as those terms are defined in the Terrorism Risk Insurance Act of 2002 (as amended); and
  • It is an act that has been committed by an individual or individuals as part of an effort to coerce the civilian population of the United States or to influence the policy or affect the conduct of the United States government by coercion
• Catastrophic Industrial Accident: A chemical release, large explosion, or small blast that is localized in nature and affects workers in a small perimeter the size of a building.

The premium charge for the coverage your policy provides for workers' compensation losses caused by a Catastrophe (other than Certified Acts of Terrorism) can be found in Item 4 of the Information Page.

Premium for Natural Disasters and Catastrophic Industrial Accidents is calculated on the basis of total payroll. A risk’s total payroll is divided by units of $100 and multiplied by the carrier rate for Natural Disasters and Catastrophic Industrial Accidents. The calculation is expressed as (Payroll/100 x Rate = Premium).

For non-payroll classes the premium is calculated as a percentage, multiplied by the non-payroll class premium. This premium is not subject to any other modifications including, but not limited to, carrier premium discount, experience rating or retrospective rating.

Unless an “If Any” policy develops premium during the policy term or at audit, policies issued on an “If Any” basis will not be charged this premium.

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Terrorism Premium

The New York Compensation Insurance Rating Board's Rates Committee has adopted, with the approval of the New York State Insurance Department, a change to the manner in which the premium for domestic terrorism and other catastrophes is charged.

Changes to endorsements regarding the Terrorism Risk Insurance Program Reauthorization Act (TRIPRA) have been approved by the NYS Insurance Department. These endorsement form changes are effective for policy effective dates on and after September 1, 2008.

The changes approved are patterned on recently developed National Council on Compensation Insurance (NCCI) specific endorsements which are intended for use on a nationwide basis. The basis for these changes results from the determination that both domestic and foreign terrorism should be reflected on the same endorsement, and to include definitions for losses from “terrorism” and “catastrophes (other than certified acts of terrorism). Additionally, the information contained in the disclosure endorsement incorporates the terrorism premium endorsement, thus allowing for the use of a single TRIPRA endorsement.

Premium for terrorism is calculated on the basis of total payroll. A risk's total payroll is divided by units of $100 and multiplied by the carrier terrorism rate. The calculation is expressed as (Payroll/100 x Terrorism Rate = Premium). For non-payroll classes, the premium for terrorism is calculated as a percentage, multiplied by the non-payroll class premium. The terrorism premium is not subject to any other modifications including, but not limited to, carrier premium discount, experience rating or retrospective rating.

Unless an “If Any” policy develops premium during the policy term or at audit, policies issued on an “If Any” basis will not be charged this premium.

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Minimum Premium

Minimum premium is the lowest premium for which an annual policy may be written.