Workers' compensation premium is calculated based on an estimation of employee payroll divided by 100, then multiplied by a rate specific to how employees' work is classified.  The payroll classification rates are established and approved by individual states.

The basic formula is: estimated employee Payroll ÷ 100 * Classification Rate = Manual Premium

Unlike other insurance coverage, your initial workers' compensation premium is based on an estimation of employee payroll because the final employee payroll amount cannot be accurately determined until the policy term has expired.  This estimated versus actual employee payroll is why all workers' compensation policies are audited when the policy expires.  Accurately estimating initial employee payroll will save you time and effort down the road at audit time.

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