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Rising Workers' Compensation Rates: 5 Ways to Protect Your Business Now

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Workers' compensation insurance is essential for safeguarding your employees. With several states moving toward increases, plan ahead with practical strategies that can help keep you compliant and cost-effective.

Workers' compensation insurance premiums are on the rise again. One of the biggest developments is happening in California. Beginning September 1, 2025, the state's pure premium rates will see their first major increase in a decade following the insurance commissioner's recent approval of a rate filing from the Workers' Compensation Insurance Rating Bureau (WCIRB). This move comes after years of upward medical and indemnity cost trends, signaling that the cost of covering injured workers is getting more expensive.

However, California isn't alone. Employers in several states, including North Dakota, Connecticut, Colorado, and Washington State, could also face rate adjustments that could tighten margins, especially for industries with higher workplace risk. Each of these states' premium outlooks stems from unique factors, ranging from wage inflation to increased claim severity.

In this article, we'll break down how workers' comp premiums are calculated, explain what's driving potential rate increases in these five key states, and outline steps that can help you protect your business from premium hikes.

How are workers' compensation insurance premiums calculated?

"Workers' compensation premiums aren't arbitrary numbers," says Timothy Ryan, licensed agent at Automatic Data Processing Insurance Agency, Inc. (ADPIA^®) and vice president of ADP^®. "They're based on a formula that accounts for multiple variables unique to your business."

For instance, every job type has a class code assigned by the National Council on Compensation Insurance (NCCI) or a state-specific rating bureau (e.g., California). Higher-risk industries, such as construction, have higher base rates than lower-risk industries, like an accountant working in a standard office building.

Premiums are calculated per $100 of payroll. The higher your payroll is, the higher your premium exposure. Likewise, your company's experience modification factor (Ex-Mod or EMR) score – which compares your actual loss history to the expected losses within your industry – affects your ability to obtain discounts or potentially face surcharges.

Carrier pricing and deductibles, dividends, and premium credits may also vary based on your industry or geographic location.

In short, two businesses in the same industry, with the same payroll, in the same state could still pay very different premiums depending on safety records, claims history, and negotiation strategy.

What factors are driving new workers' compensation insurance rate Increases?

Since there's no national formula for setting workers' compensation rates, rate changes often reflect localized trends and regulations.

For instance, California's approved 8.7% rate increase is driven by a rise in both medical treatment costs and indemnity, or wage replacement, payments. Since the pandemic, the state's claims frequency has actually stabilized; however, the average cost per claim has been climbing steadily.

North Dakota's Workforce Safety & Insurance Agency (WSI) is adjusting rates to rebuild reserves depleted by prior years' claims payouts and address increasing rehabilitation and prescription drug costs.

In Connecticut, wage inflation and heightened legal costs led the state's insurance department to approve increases for certain industry class codes earlier this year. The department focused on sectors that have experienced longer claim durations and higher attorney involvement. As a result, premium increases are likely to come as early as next year.

Similarly, in Colorado, health insurance companies are asking the Division of Insurance (DOI) to approve 13.6% higher premiums for next year. This move would particularly affect small employers (defined as those with fewer than 50 employees). Both inflationary factors and a small uptick in claim frequency were cited as guiding reasons for the request.

Lastly, in Washington State, the Department of Labor & Industries (L&I) has already approved a 3.8% average rate increase – citing high benefit costs, wage growth, and medical care trends.

It's important to note that the NCCI's 2025 State of the Line Report—a key benchmark for workers' compensation trends—supports these state-level moves. The report notes that nationwide indemnity costs are trending higher due to wage growth, medical inflation, and longer recovery periods.

5 tips to help avoid a massive workers' compensation insurance premium increase

"The reality is you can't control the market," adds Ryan. "But you can control the documentation, classifications, and claims outcomes that determine how much you actually pay."

With that in mind, here are a few helpful tips to consider when analyzing your workers' compensation strategy:

1. Audit your classifications before renewal.

Misclassified employees can create headaches with workers' comp coverage. For instance, if an office worker is incorrectly classified as a field technician, you'll likely pay a much higher rate than is necessary. To avoid this, it's a sound business practice to regularly review your job codes to ensure accuracy and report any discrepancies as needed.

2. Tighten your payroll estimates.

Premiums are calculated based on payroll projections. Therefore, overestimating means you're overpaying throughout the policy term, whereas underestimating could lead to a hefty audit bill when the policy term ends. That's why it's important to provide your carrier, agent or broker with up-to-date figures based on real data.

3. Build a provable safety culture.

Safety talk isn't enough – document it. Keep detailed records of training sessions, incident reports, and hazard-reduction measures. This not only helps prevent claims, but also strengthens your case for discounts or credits.

4. Develop a return-to-work program.

Offering light-duty or modified roles for injured employees reduces productivity loss, lowers wage replacement costs, and shortens claim duration – all of which help improve your Ex-Mod score.

5. Partner with an experienced agent or broker.

Navigating rate changes alone can be challenging for business owners. That's why it's a solid investment to seek out experts, like ADP® affiliate Automatic Data Processing Insurance Agency, Inc. (ADPIA®). Discussing your individual business needs with a licensed insurance agent and other professionals gives you access to competitive quotes and coverage strategies.

For example, ADP's Pay-by-Pay® Premium Payment Program can help align your workers' comp payments with actual payroll cycles for better cash flow management. Additionally, a skilled agent can market your account to multiple carriers, seek coverage bundling discounts from those carriers, and potentially find premium credits.

"Workers' comp rate increases can significantly impact a business," concludes Ryan. "But proactive management is the most effective way to weather these changes and protect both your employees and your bottom line."

To learn more about protecting your employees and your business, check out ADP^® affiliate, Automatic Data Processing Insurance Agency, Inc. (ADPIA®), for the latest in workers' compensation insurance.

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