Components of Workers' Compensation Premium

The calculation of workers' compensation premium contains many components. Classification and remuneration are subject to audit at the end of the policy year, so final premium may increase or decrease on audit. Final premium is subject to minimum premium, the lowest premium for which an annual policy may be written. All charges are detailed on the NYSIF Information Page sent to the policyholder.

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Classification Code

Classification codes are set by the NY Compensation Insurance rating Board (NYCIRB), an independent, non-governmental rating authority. Classification codes group together businesses of similar types to ensure that those with a low potential for loss do not pay the same rate as those with a high potential for loss. 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.

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Loss Cost Multiplier

New York Compensation Insurance Ratings Board (NYCIRB) promulgates new loss costs each year after an actuarial review of losses and payrolls for each of more than 600 existing classifications. NYCIRB determines a different loss cost for each of the 600 different classifications to generate sufficient premium to pay current and future compensation and medical benefits. These loss costs are subject to approval by the New York State Department of Financial Services.

Workers’ compensation insurance carriers must develop their own loss cost multipliers. These multipliers reflect their own expenses, such as general overhead, business acquisition, taxes, etc. Multipliers do not include claims expenses that are included in the loss costs. When the loss cost multipliers are applied to the NYCIRB loss costs, the carrier’s actual rate for each classification is computed. This means each carrier will have a different rate for each classification code. Carriers must file their loss cost multipliers with the Insurance Department for approval.

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NYSIF Manual Rate Premium Calculation

NYSIF computes manual rate premium 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 NYCIRB loss cost by the NYSIF loss cost multiplier and dividing the result by 100. Since rates are mathematically based, they produce an objective pricing system.

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NYSIF Standard Premium Calculation

NYSIF computes standard premium by multiplying NYSIF's manual rate premium by the NYCIRB promulgated Experience Rating factor.

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NYSIF Base Premium Calculation

NYSIF computes base premium by adding NYSIF standard premium and the Expense Constant.

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Remuneration

Remuneration is the basis for most workers’ compensation premiums. 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 on any basis other than time worked, such as piecework, profit sharing or incentive plans;
  • Payment or allowance for hand tools either directly or through a third party used in work or operations for the insured;
  • Rental value of an apartment or a house provided for an employee;
  • Value of other lodging received as part of pay;
  • Value of meals received as part of pay;
  • Value of store certificates, merchandise, credits or any other substitute for money received as part of pay;
  • Payments for salary reduction, employee savings plans, retirement or cafeteria plans made through employee authorized salary deductions from the employee’s gross pay;
  • Wages paid as salary in conjunction with the Davis-Bacon Act or other prevailing wage laws;
  • Annuity plans;
  • Expense reimbursements 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 earned by the commercial’s participant(s).

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Experience Rating

The Experience Rating plan, administered by NYCIRB, recognizes that similar employers may not be similar with respect to safety and losses, and adjusts for those differences by modifying the overall premium paid by the employer. Generally, all employers with premiums in excess of $5,000 become experience rated. NYCIRB promulgates an experience modification for all qualified employers. The modification, a percentage credit or debit applied to the employer's manual premium, is determined by comparing an employer’s actual losses to the expected losses for an employer of similar size in the same industry.

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NYSIF Modification

NYSIF may apply its own modification of rates by means of a credit (discount), or a surcharge (differential), based upon criteria such as: prior loss experience, premium payment history, the nature and hazards of your business, adherence to safe work practices, compliance with requirements of the Workers’ Compensation Law, and cooperation with NYSIF on claims matters and premium audits.

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Expense Constant

A policy fee charged on every workers’ compensation policy, regardless of premium size, to compensate for the basic costs of administering the policy.

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New York State Assessment Charge

NYCIRB determines the assessment charge that 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.

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Natural Disaster and Catastrophe Premium

Effective September 1, 2008, the premium for domestic terrorism and other catastrophes is no longer part of the manual rate, but is a stand alone charge similar to the Terrorism Risk Insurance Act (TRIA) charge for foreign terrorism. Catastrophe (other than Certified Acts of Terrorism) under Workers’ Compensation Law is defined as any single event, resulting from an earthquake, Non-certified Act of Terrorism, or catastrophic industrial accident that results in aggregate workers' compensation losses in excess of $50 million.

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Terrorism Premium

Effective September 1, 2008, the NYS Insurance Department approved endorsement changes to the Terrorism Risk Insurance Program Reauthorization Act for use on a nationwide basis. These changes determine that both domestic and foreign terrorism should be reflected on the same endorsement, and include definitions for losses from “terrorism” and “catastrophes” (other than Certified Acts of Terrorism).

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Minimum Premium

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

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