Workers' comp for contractors
Checked 2026-09-04, 8 min read
Filed under Bonds & insurance
§ 1The premium formula
Workers’ compensation is the most transparent premium a contractor buys, because the arithmetic is published. Three inputs, one multiplication:
premium = (payroll ÷ 100) × class rate × experience modification rate
Everything else — schedule credits, expense constants, state assessments — sits on top of that core. If you understand these three numbers you understand your bill.
Our premium calculator runs the formula across multiple class codes, which is how a mixed crew is actually rated.
§ 2Class codes
A class code is the insurance industry’s description of what a worker does, and the rate attached to it is the historic cost of injuries in that work. Roofers cost more than painters; painters cost more than office staff. That is the whole idea.
| Situation | How it is rated | The trap |
|---|---|---|
| One trade, one crew | One code across the payroll | None |
| Mixed crew, separate records | Split by code, per employee | Records must be kept properly to get the split |
| Mixed crew, no records | The highest applicable code, on everything | This is the expensive default |
| Owner also works on tools | Owner payroll rated at the trade code | Assuming an officer is automatically excluded |
The split is earned by paperwork.
Carriers will divide payroll across codes only where records genuinely support it — time records by task, not an allocation invented at audit time. No records, one code, and it will be the dearest one on your policy.
§ 3The e-mod
The experience modification rate compares your claim history with what a business of your size and class would be expected to produce. 1.00 is expected. Below 1.00 you are better than expected and your premium is discounted; above 1.00 it is loaded.
Two properties surprise people. It is frequency-weighted: several small claims move it more than one large one, because frequency predicts future losses better than severity. And it lags — it is built from a multi-year window that excludes the most recent months, so a good year takes time to show up and a bad one takes years to leave.
§ 4Uninsured subcontractors
This is the single largest unplanned workers’ comp cost in contracting. If you cannot produce a valid certificate for a subcontractor at audit, the carrier will generally treat what you paid that sub as your payroll and charge you for it at the appropriate class rate.
Not a fine — a premium adjustment, backdated across the policy year, on money you have already paid out. A single uninsured framing crew can outweigh a year of careful underwriting.
Collect the certificate before the first day, not at audit.
And check the dates cover the whole engagement. A certificate that expired mid-job is the same as no certificate for the weeks after it lapsed. Our certificate request sheet is written for exactly this collection problem.
Write the requirement into the subcontract first; subcontractor insurance requirements builds the clause.
§ 5The audit
Workers’ comp is rated on estimated payroll and settled on actual payroll. The audit at the end of the term reconciles the two, and it produces either a refund or a bill.
Three habits make audits uneventful: keep payroll records split by class code as you go; keep every subcontractor certificate in one place with its dates; and tell the carrier mid-term if payroll has moved a long way from the estimate, so the correction is instalments rather than a single unwelcome invoice.
State rules vary materially — Texas, for instance, does not make workers’ compensation universally mandatory for private employers, which changes the contract analysis rather than removing it. Check your own state fund or department before you rely on a general rule.
Checked against
- Texas Department of Licensing and Regulation — programme listread 2026-10-18
- CSLB — Limited Liability Company (LLC) licensesread 2026-10-18
Not legal advice. Fees, bond amounts and deadlines are set by statute and change without notice — confirm with the board that issues your license before you file.