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Understanding Business Risks in Construction
Construction and contracting remain among the most physically demanding industries in the United States. Every project brings a combination of skilled trades, heavy equipment, shifting site conditions, and tight deadlines. When those factors meet, the risk of injury is real and constant.
The numbers confirm what most contractors already know from experience. According to the Bureau of Labor Statistics, the construction industry recorded 1,099 fatal work injuries in 2023, more than any other industry in the country.
Construction deaths account for 19 percent of all U.S. worker fatalities each year. Non-fatal injuries tell a similar story: there were 169,600 recorded non-fatal construction injuries and illnesses in 2022, with 42 percent of those resulting in days away from work. The average injured worker missed 11 days of work per incident.
These are not just statistics. Every one of those cases represents a worker who went to a job site and did not come home whole. They also represent a financial and operational disruption for the contractor involved.
The Financial Weight of Workplace Injuries
Workers’ compensation claims across the U.S. construction industry totaled $11.4 billion in 2023. That figure does not account for the indirect costs that come alongside a claim: lost productivity, overtime for other workers filling the gap, management time spent on paperwork, potential increases in insurance premiums, and the reputational impact of a poor safety record.
Liberty Mutual’s 2024 Workplace Safety Index estimates that U.S. businesses spend more than $1 billion every week covering workplace injury costs, totaling more than $58 billion annually across all industries. For contractors operating on thin margins, absorbing even a fraction of those costs out of pocket can threaten the viability of a company.
The Four Fatal Categories
The construction industry tracks what it calls the Fatal Four: the four incident types responsible for the largest share of construction deaths each year. Together, they account for more than 65 percent of all fatalities on construction sites.
Falls
The most common cause of death on construction sites, responsible for the majority of fatal incidents. Small employers are disproportionately affected, with businesses of 1 to 10 workers accounting for more than 70 percent of fatal falls.
Electrocution
Contact with live electrical sources, particularly relevant for electricians and general contractors working near utilities.
Struck by Object
Workers being hit by falling tools, materials, or swinging equipment.
Caught-In or Between
Workers caught in equipment, machinery, or between moving objects.
Understanding these categories is the starting point for any effective risk management program. Prevention efforts focused on these four areas will address the majority of serious risk on any job site.
Why Coverage Is Not Optional
Most states require contractors with employees to carry workers’ compensation insurance. Beyond legal compliance, the financial case is straightforward. Without proper coverage, a single serious injury can expose a business to medical costs, disability payments, and legal liability that far exceed the cost of any annual premium.
Farmer Brown Insurance works with contractors across the country to build coverage programs that fit the nature of their work, the size of their teams, and the states where they operate. The chapters that follow explain how workers’ compensation insurance functions, how to build a safety program that actively reduces risk, and how to manage your coverage so that it works for your business over the long term.
Navigating Workers’ Compensation Insurance
Workers’ compensation insurance covers medical costs, lost wages, and rehabilitation expenses for employees who are injured or become ill as a direct result of their work. It operates as a no-fault system, meaning benefits are paid regardless of who caused the incident. That design protects both the employee and the employer, removing the need for lengthy legal disputes in most cases.
Coverage requirements vary by state, but in most jurisdictions a contractor with at least one employee is required to carry workers’ compensation insurance.
Texas is the only state where coverage is optional for private employers, and even there, contractors who opt out take on full legal liability for any work-related injuries that occur.
What Workers’ Compensation Covers
While each state sets its own rules, most workers’ compensation policies cover the following categories:
Temporary disability benefits: Payments made while an employee recovers and is unable to perform their full job duties.
Death benefits: Payments to the dependents of workers killed in a job-related incident.
Permanent disability benefits: Compensation for employees who suffer a lasting impairment that affects their ability to earn.
Vocational rehabilitation: Job retraining and support for employees who cannot return to their previous role due to the nature of their injury.
Medical expenses: All reasonable and necessary medical treatment for the work-related injury, including emergency care, surgery, prescription medication, physical therapy, and follow-up appointments.
Lost wages: Typically, workers’ compensation replaces between 60 and 67 percent of an employee’s average weekly wage while they are unable to work.
How Your Premium Is Calculated
Workers’ compensation premiums are not a flat fee. They are calculated using several variables specific to your business. Understanding those variables puts you in a position to actively manage your cost.
Payroll
Premiums are expressed as a rate per $100 of payroll. The more you pay your workers, the higher the base premium.
State of operations
Workers’ compensation rates vary significantly by state due to differences in medical costs, legal requirements, and how claims are managed.
Job Classification Codes
Each type of construction work is assigned a class code by the National Council on Compensation Insurance (NCCI). Higher-risk work, like roofing, carries a higher base rate. In California, for example, roofers under class code 5552 currently carry rates ranging from $24 to $80 per $100 of payroll. General carpentry, framing, and commercial construction each carry their own rates.
Experience Modification Rate (EMR)
This is a multiplier applied to your base premium based on your company’s claims history. An EMR of 1.0 is average. Below 1.0 means you are safer than average and your premium is reduced. Above 1.0 means more claims than average and your premium increases. Chapter 4 covers the EMR in depth.
Company age
Newer companies are generally rated at the industry average until enough claims data is available to calculate an EMR. Established companies with clean records earn credit.
Understanding these categories is the starting point for any effective risk management program. Prevention efforts focused on these four areas will address the majority of serious risk on any job site.
Choosing the Right Policy
Not all workers’ compensation policies are structured the same way. Some contractors benefit from guaranteed-cost programs where the premium is fixed. Others may qualify for loss-sensitive programs where the final premium adjusts based on actual claims during the policy period, which can produce significant savings when a safety program is performing well.
Speaking with an insurance agent who specializes in contractor coverage is the most reliable way to find the right structure for your business. Farmer Brown Insurance agents work exclusively with contractors and construction businesses, which means they understand the risks specific to your trade and can match you with coverage that reflects the actual nature of your work.
Practicing Good Risk Management
Buying workers’ compensation insurance addresses what happens after an injury. Risk management addresses what happens before. The most effective way to lower workers’ compensation costs over time is to reduce the frequency and severity of workplace injuries in the first place.
A Dodge Construction Network study found that 74 percent of respondents saw increased worker engagement with safety when a formal health and safety plan was introduced before construction began.
OSHA research supports the financial case: employers who establish strong safety programs can reduce costs related to injury and illness by up to 40 percent. Those savings flow directly to the bottom line.
Build a Formal Safety Program
A formal safety program is a written document that establishes your company’s safety standards, assigns responsibility for safety tasks, and defines how incidents will be handled. It signals to employees that safety is a company priority, not an afterthought. It also gives you a documented framework to point to if a claim ever goes to litigation.
Your safety program should at minimum address: required personal protective equipment for each type of task, procedures for working at height, fall protection standards, equipment inspection requirements, incident reporting procedures, and the steps your company takes after an injury occurs.
Train Your Employees Consistently
Training should not be a one-time event at the start of employment. Construction methods, tools, and regulations evolve. Workers who learned a technique five years ago may be using a practice that has since been updated or replaced. Scheduled refresher training keeps safety knowledge current and gives experienced workers the chance to reinforce good habits while newer employees build theirs.
Toolbox talks are one of the most effective and low-cost training tools available to contractors. These brief, focused conversations at the start of a shift or work week keep safety topics in front of the team on a regular basis. Topics can rotate through fall protection, equipment handling, hazard communication, heat illness prevention, and any area where your team has seen near-misses.
Document Every Incident
When an injury or near-miss occurs, documentation is essential. A written record of the incident, the conditions that led to it, witness accounts, and the corrective action taken does several things at once. It gives you the information needed to prevent a repeat incident. It demonstrates to your insurer that you take safety seriously. And it establishes a factual record that protects your company if the claim is later disputed.
Near-misses deserve the same documentation attention as actual injuries. A worker who almost fell from scaffolding, or who barely avoided being struck by a piece of equipment, is telling you something important about conditions on your site. Tracking those events and reviewing them with your team turns near-misses into prevention.
Maintain Equipment Proactively
Equipment failures are a leading contributor to construction injuries. A saw with a worn guard, a harness with frayed straps, or a ladder with a damaged rung can turn a routine task into a serious injury in seconds. Proactive maintenance schedules, combined with pre-use inspections by the workers who operate the equipment, are the most reliable way to catch problems before they cause harm.
Rotating maintenance responsibilities among team members has an additional benefit. Workers who maintain equipment understand how it works and are more likely to use it safely. They also notice signs of wear faster than someone who only uses the equipment without ever looking inside it.
Use Technology to Improve Visibility
Construction safety technology has advanced significantly over the past decade. Digital safety management platforms allow contractors to assign and track safety checklists, record observations from the field, schedule and document toolbox talks, and generate reports that show where safety gaps exist before they become claims.
Wearable sensors and IoT devices are increasingly used on larger job sites to monitor worker location, detect falls, and flag hazardous conditions in real time. These tools do not replace human supervision, but they extend a supervisor’s ability to monitor conditions across a large or complex site. Research from companies like NVIDIA and Komatsu shows that consistent technology integration has measurably reduced workplace injuries at their facilities.
Supervise Actively
Active supervision means being present on the site, observing work as it happens, and communicating what you see. It also means creating an environment where workers feel comfortable raising safety concerns without fear of dismissal or embarrassment. Workers are often the first to notice when something is wrong, but they need to know their employer will take those observations seriously.
Immediate reporting of an injury also directly affects the cost of a workers’ compensation claim. Research consistently shows a direct correlation between how quickly a claim is reported and how much it ultimately costs. Claims reported within 24 hours of the incident are resolved faster, at lower cost, and with less likelihood of litigation than claims reported days or weeks later.
Your EMR and How It Controls Your Premiums
The Experience Modification Rate, commonly called the EMR or e-mod, is one of the most important numbers in your workers’ compensation program. It functions like a credit score for your company’s safety record, and it directly determines how much you pay for coverage.
How the EMR Works
The EMR compares your company’s workers’ compensation claims history to the average for businesses of similar size in the same industry. An EMR of 1.0 means your claims history is exactly average. An EMR below 1.0 means you have fewer claims than average, and your premium is reduced by that percentage. An EMR above 1.0 means more claims than average, and your premium is increased accordingly.
A practical example: if your base annual premium is $100,000 and your EMR is 0.85, you pay $85,000. If your EMR is 1.20, you pay $120,000. The same coverage, a $35,000 difference in cost, based entirely on your safety record.
The EMR is calculated by the NCCI or your state’s rating bureau using three years of claims data, excluding the most recent policy year. That lag means actions you take today will begin showing up in your EMR in roughly two years, and will affect your premiums for three years after that.
Why the EMR Matters Beyond Premiums
The financial impact is significant, but the EMR affects your business in ways that go beyond what you pay for insurance. Many project owners, particularly on commercial and government contracts, require bidding contractors to submit their EMR as part of the prequalification process. A threshold of 1.0 or below is commonly required. An EMR above that level can disqualify your company from bidding on major projects before anyone has reviewed your price.
A high EMR is public information. Potential clients and general contractors can request it as part of their vetting process. A low EMR signals that your company runs safe, professional job sites. A high one signals the opposite.
What Drives Your EMR Up
Frequency of claims matters more than severity. Multiple smaller claims will raise your EMR faster than a single large one, because the NCCI formula weights the first portion of each claim (known as the primary loss, currently set at $18,500) more heavily than the excess. A company with three small claims in a year will see a greater impact on its EMR than a company with one significant claim.
Open claims with high reserves also affect the calculation. A claim that remains open with a large reserve assigned to it counts at that reserve value until it is closed. Proactively managing claims to resolution reduces the exposure sitting on your record.
How to Lower Your EMR
Workers’ compensation premiums are not a flat fee. They are calculated using several variables specific to your business. Understanding those variables puts you in a position to actively manage your cost.
Reduce incident frequency
The most direct path to a lower EMR is fewer incidents. Every safety investment, training session, and inspection protocol that prevents an injury from occurring keeps a claim off your record.
Report claims immediately
Early reporting reduces claim costs, which reduces EMR impact. Claims reported within 24 hours of an incident cost significantly less than those reported days later.
Implement a return-to-work program
Getting an injured employee back to modified or light-duty work as soon as their physician allows reduces the duration of wage replacement payments. Medical-only claims, where no lost time occurs, are reduced by 70 percent in the EMR calculation in most states. That is a powerful incentive to minimize lost work time.
Verify your job classifications
Each worker must be assigned the correct NCCI class code. Misclassification, either accidental or from outdated records, can result in higher premiums than the actual work warrants.
Audit your EMR calculation
Errors in your EMR calculation are more common than most contractors realize. Incorrect payroll figures, wrong job classification codes, improperly reserved claims, and open claims that should have been closed can all inflate your EMR. An insurance agent who specializes in construction can review your NCCI worksheet and advocate for corrections. One documented case involved an e-mod correction that produced $41,000 in premium refunds over three years.
Improving your EMR is not a quick fix. The three-year rolling calculation means progress takes time to show up. But companies that commit to a safety program and claim management discipline see measurable results, and those results compound over time as older, high-cost claims roll off the calculation.
The Claims Process, Step by Step
Even with the strongest safety program in place, injuries can still happen. Knowing how to handle a claim correctly from the moment of injury to the employee’s return to work determines how smoothly the process goes, how much it costs, and what long-term effect it has on your coverage.
Step 1: Respond to the Injury Immediately
When an injury occurs, the first priority is the worker’s wellbeing. Provide first aid on site if you are able to do so. If the injury requires professional medical attention, arrange for it without delay. Do not ask the worker to wait until paperwork is complete before seeking care.
Note the conditions at the time of the incident, and if possible, take photographs of the area. Gather statements from anyone who witnessed the event. This documentation will be valuable during the claims process and in any post-incident review.
Step 2: Ensure the Injury Is Reported Promptly
The employee must formally report the injury to you, and you must report it to your insurance carrier. Most states require the employer’s first report of injury to be filed within a specified time frame, some as short as 24 to 72 hours. Delays in reporting can result in complications with the claim and, in some cases, penalties.
Create a workplace culture where reporting an injury is understood as the correct and expected action. Some employees are reluctant to report injuries out of embarrassment, concern about their job security, or a desire not to cause problems for their employer. Addressing those concerns directly, and making clear that the reporting process exists to help the injured worker, removes that barrier.
Step 3: File the Claim with Your Insurance Carrier
Once the injury is reported, work with your carrier to file the workers’ compensation claim. The injured employee will typically need to complete their own portion of the claim form. Your insurance carrier will assign an adjuster who will review the documentation, confirm coverage, and begin coordinating medical care.
Maintain regular contact with your adjuster throughout the process. They are a resource, not just a gatekeeper. A good adjuster can help identify the right medical providers, manage the recovery timeline, and keep the claim moving toward resolution.
Step 4: Support the Employee’s Recovery
Stay in contact with the injured employee during their recovery. Regular, genuine communication reduces the likelihood that a claim escalates into litigation. Workers who feel abandoned or forgotten by their employer are more likely to hire attorneys and pursue additional damages.
Provide the treating physician with a clear description of the physical requirements of the employee’s job. This helps the doctor make accurate assessments about when the worker can return and what modifications might allow an earlier return.
Step 5: Execute a Return-to-Work Plan
A return-to-work program is one of the most cost-effective tools available to contractors managing workers’ compensation claims. The goal is to bring the injured employee back to productive work as soon as their physician permits, even if that means modified duties in the short term.
Replacing an experienced worker while they are out on a workers’ compensation claim can cost between 50 and 150 percent of their annual salary when you factor in recruiting, onboarding, and productivity loss. A structured return-to-work program avoids most of that cost.
Light-duty or transitional work assignments should be defined before they are needed. Identify which tasks at your company can be performed with physical restrictions, and document those roles. When an injury occurs, you will be able to offer the physician a concrete alternative rather than a vague promise.
Step 6: Close the Claim Cleanly
Once the employee returns to full duty or reaches maximum medical improvement, work with your adjuster to close the claim. Open claims with high reserves sitting on your record continue to affect your EMR until they are resolved. An experienced insurance agent can help you monitor open claims and advocate for appropriate reserve levels throughout the process.
Getting the Most Out of Your Coverage
Workers’ compensation insurance is a cost of doing business in the construction industry. But it is also a cost that responds to how you manage your company. The contractors who get the best value from their coverage are the ones who treat their policy as an active tool rather than a passive expense.
Review Your Policy Annually
Your business changes from year to year. You add workers, take on new types of projects, enter new states, and bring in new equipment. Each of those changes can affect your coverage needs and your premium calculation. An annual review with your insurance agent ensures that your policy reflects the actual state of your business and that you are not paying for coverage you do not need, or missing coverage you do.
Audit Your Payroll and Class Codes
Errors in payroll reporting and job classification are among the most common sources of overpayment in workers’ compensation. Conduct an internal audit before each renewal to confirm that every worker is assigned the correct class code and that your payroll figures are accurate. If your company performs multiple types of work, make sure the allocation between class codes reflects reality. Misclassifying a lower-risk worker under a higher-risk code can cost you thousands of dollars in unnecessary premium.
Ask About Safety Credits and Discounts
Many insurers offer premium credits for contractors who maintain active safety programs. Drug-free workplace programs, formal safety committees, and documented training records are among the factors that can qualify your company for a reduction. These credits are not always applied automatically. Ask your agent what programs your insurer recognizes and what documentation is required to qualify.
Benchmark Against the Industry
Understanding where your EMR stands relative to other contractors in your trade gives you a concrete goal. An EMR of 1.0 is the industry average. Most competitive contractors in general construction target a range between 0.75 and 0.90. Specialty trades with higher base risk may operate at higher baseline rates, but the principle is the same: consistent improvement over time produces consistent savings.
Sharing your EMR publicly, whether on your website, in bid packages, or in conversations with potential clients, turns a strong safety record into a competitive advantage. Clients who are experienced in hiring contractors understand what a low EMR signals about a company. It tells them you run organized, professional job sites where workers are protected and projects are less likely to be disrupted by injury-related delays.
Work with a Specialist
Workers’ compensation for contractors is a specialized area. General insurance agents who handle a wide range of commercial accounts may not be familiar with the specific class codes, EMR mechanics, and coverage structures that apply to construction businesses. An agent who works exclusively in contractor insurance understands how the work is classified, what programs your insurer offers for risk improvement, and how to advocate on your behalf when a claim arises.
Farmer Brown Insurance focuses on contractors and construction businesses. Our team understands the daily realities of running a contracting company, from managing subcontractors to navigating multi-state operations. We offer workers’ compensation reviews, EMR analysis, and ongoing support designed to help you reduce your cost of insurance over time while keeping your workers protected.
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