A classification code is used to determine the level of risk for different types of jobs. The experience modification rate is a multiplier that starts at 1.0 and is applied to determine whether your business should pay more or less based on the number and types of Workers Comp claims you’ve had. It basically benchmarks your claims experience against other similar-size businesses in your industry. If you’ve had a clean loss history, your experience modification rate will be lower than 1.0 and will earn you a credit on your policy, helping to reduce your premium. If you have a poor claims history, your business will earn a debit modification that will increase the premium.

For each $100 of your payroll, there is a specific rate, which is determined by the classification codes of your employees. Ensuring your Workers Comp payroll is accurate is critical as there may be a difference between actual payrolls and Workers’ Comp payrolls. This is because Workers’ Comp premiums are typically calculated on an annual basis and will be quoted as an Estimated Annual Premium (EAP). The premium is estimated with the insurer conducting a year-end audit that results in either applying a credit, issuing a refund, or requesting an additional premium if payroll is underreported.