How PEOs Calculate Workers' Comp
The Formula Behind Your Workers Comp Cost
PEO workers comp is calculated using a straightforward formula, but most business owners never see it. Your cost equals your payroll times your rate times your EMOD, plus any PEO markup. Understanding this formula tells you exactly where your money goes and which inputs you can change to lower your cost.
Payroll, rate, and EMOD
Of payroll is how rates are quoted
Markup range some PEOs add
To calculate your true cost
Key Workers Comp Factors
Total Payroll
Your annual payroll is the base. Every dollar of payroll is multiplied by your rate to get your premium. Higher payroll means higher premium.
Base Rate
Your rate is quoted per $100 of payroll for each class code. A rate of $5.00 means you pay $5.00 for every $100 of payroll in that class code.
Experience Modifier
Your EMOD scales your base rate. A 1.0 EMOD means you pay the base rate. Above 1.0 means more, below means less.
PEO Markup
Some PEOs add a markup over the pure cost. This is a percentage added to your calculated premium. It is the biggest hidden cost in many quotes.
Class Code Mix
Most businesses have employees in multiple class codes. Each class code has its own rate. Your total cost is the sum across all class codes.
Schedule Credits
Some carriers offer credits for safety programs or drug free workplaces that reduce your final calculated premium.
The PEO Workers Comp Formula
The formula is: Payroll divided by 100, times base rate, times EMOD, plus PEO markup. For example, if you have $500,000 in payroll, a base rate of $5.00, an EMOD of 1.0, and no markup, your annual premium is $25,000. If your EMOD is 1.2, it is $30,000. If the PEO adds a 20 percent markup, it is $36,000. Understanding this formula lets you see exactly where your cost comes from and which inputs you can change.
- Payroll divided by 100 gives you the rate units
- Multiply by the base rate for your class code
- Multiply by your EMOD to scale up or down
- Add any PEO markup percentage on top
- Sum across all class codes for your total cost
- Subtract any schedule credits for safety programs
Which Inputs You Can Actually Control
You cannot change your industry base rate, which is filed with the state. But you can control your EMOD through safety programs and claims management. You can ensure your class codes are accurate, which prevents overpaying. And you can choose a PEO that passes workers comp through at cost instead of marking it up. The inputs you control are the ones worth focusing on.
Why the PEO Markup Is the Variable to Watch
The PEO markup is the one variable that varies the most between PEOs and is the hardest to see. Two PEOs with the same base rate and EMOD can have very different total costs because one marks up workers comp 25 percent and the other does not. Always ask for the pure workers comp cost and the markup separately. A broker calculates the true total cost across multiple PEOs so you see the real difference.
Workers Comp Calculation FAQ
How do PEOs calculate workers comp cost?
What is the workers comp rate per $100 of payroll?
How does the PEO markup affect my workers comp cost?
How can I calculate my true PEO workers comp cost?
PEO Workers Comp Guides
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