Texas Workers Compensation Class Codes and Rates Guide

If you’re a business owner in Texas, you already know that managing workers’ compensation is more than just a legal requirement—it’s a smart way to protect your team and your bottom line. Did you know that Texas has some of the lowest workers’ comp costs in the nation? In fact, the average rate for workers’ comp insurance in Texas is around $0.75 per $100 of payroll, compared to the national average of $1.05. But here’s the catch—your rate depends heavily on the class codes assigned to your business and employees. 

But here’s the deal: understanding class codes and rates can feel like trying to decode a technical language. These codes directly impact your premiums, and getting them right can mean the difference between overpaying or saving thousands of dollars.

Let’s break it all down: what class codes are, how they affect rates, and how you can use this knowledge to manage your costs effectively. Whether you’re a small retail store or a bustling construction company, this guide has you covered!

Understanding Workers' Compensation Class Codes in Texas

Workers' compensation insurance might sound complicated, but understanding how class codes work can save you a lot of money and headaches. In Texas, workers' comp class codes are like a roadmap for insurance providers—they define the level of risk associated with different job types and help calculate your premiums.

Think of it this way: an office worker and a construction laborer face very different risks on the job. Class codes ensure that businesses only pay for the level of risk tied to their employees’ specific roles. Misclassifying these codes can lead to overpaying or, worse, penalties.

What Are Class Codes?

Workers’ compensation class codes are numeric labels assigned to specific job roles. These codes categorize industries and occupations based on their risk levels, ensuring insurance rates accurately reflect the potential hazards of each job.

• For example, a construction worker might have a class code tied to higher-risk activities like using heavy machinery.
• Meanwhile, a clerical worker would have a much lower-risk class code, resulting in lower premiums.

Why Do Class Codes Matter?

Getting your class codes right is crucial for several reasons:

• Accurate Premiums: Class codes directly determine your insurance rates. High-risk jobs like roofing have higher premiums, while low-risk jobs like clerical work are much cheaper.
• Avoiding Overpayment: If your employees are misclassified into higher-risk categories, you’ll pay more than you need to.
• Staying Compliant: Incorrect classifications can lead to audits, fines, or even policy cancellations.

Common Class Codes in Texas

Here are a few common class codes that many businesses in Texas use:

• Class Code 3632: Machine shop workers, typically rated at $1.29 per $100 of payroll.
• Class Code 3724: Garage door installation, with rates around $1.78 per $100 of payroll.
• Class Code 5022: Masonry construction, a higher-risk role, rated at $3.19 per $100 of payroll.
• Class Code 5183: Plumbing contractors, with rates at $1.47 per $100 of payroll.
• Class Code 8810: Clerical office employees, one of the lowest-risk roles, with rates as low as $0.05 per $100 of payroll.

By understanding and correctly applying workers' compensation class codes, you can ensure your premiums are fair, your business remains compliant, and you’re not paying more than necessary. Plus, knowing your class codes helps you work with your insurance provider to get a policy that truly fits your business needs.

Let’s dive deeper into how these rates work and what they mean for your business with examples.

Texas Workers' Compensation Rates for Various Industries

When it comes to workers’ compensation insurance, the rates aren’t one-size-fits-all. They vary widely depending on the type of work your business does and the associated risks. Whether you’re managing a construction company, a retail store, or a corporate office, understanding these industry-specific rates can help you budget better and avoid surprises.

In Texas, workers’ comp rates are typically calculated per $100 of payroll, but the nature of your industry heavily influences these costs. 

Texas Workers' Comp Class Codes and Rates with Examples

Let’s take a closer look at some of the most common class codes in Texas, along with real-world examples to show how premiums are calculated.

1. Machine Shops (Class Code 3632)

Machine shop workers handle heavy machinery and tools, making it a moderately risky industry. Injuries can include cuts, burns, or repetitive strain from operating equipment, which is why the rate is $1.29 per $100 of payroll.

Example:
A machine shop with a payroll of $200,000 would calculate its annual premium as:
(200,000 ÷ 100) × 1.29 = $2,580.
To lower these costs, implementing strong safety protocols and training programs is essential.

2. Garage Door Installation (Class Code 3724)

Installing or repairing garage doors involves physical labor, heavy lifting, and working at heights, which contribute to its moderate risk level. The rate for this class code is $1.78 per $100 of payroll.

Example:
A garage door company with a payroll of $150,000 would pay:
(150,000 ÷ 100) × 1.78 = $2,670 annually in workers’ comp premiums.
Safety measures, such as fall protection and proper training, can help reduce accidents and keep rates manageable.

3. Masonry Construction (Class Code 5022)

Masonry work involves using bricks, stones, and concrete, often in physically demanding and hazardous environments. The higher risk is reflected in its rate of $3.19 per $100 of payroll.

Example:
A masonry business with a payroll of $250,000 would calculate its premium as:
(250,000 ÷ 100) × 3.19 = $7,975 annually.
Given the nature of the work, investing in safety gear and regular training can help reduce claims and control costs.

4. Plumbing Contractors (Class Code 5183)

Plumbing contractors face moderate risks such as injuries from tools, exposure to water hazards, and confined spaces. This is reflected in a rate of $1.47 per $100 of payroll.

Example:
A plumbing company with a payroll of $300,000 would pay:
(300,000 ÷ 100) × 1.47 = $4,410 annually.
Encouraging employees to follow safety protocols can minimize risks and help keep premiums lower.

5. Retail Stores - Merchandise (Class Code 8017)

Retail workers generally face lower risks, with most activities involving handling merchandise or assisting customers. The rate for this class code is $0.68 per $100 of payroll.

Example:
A retail store with a payroll of $500,000 would calculate its annual premium as:
(500,000 ÷ 100) × 0.68 = $3,400.
Proper employee training and maintaining a safe work environment can further reduce costs.

6. Clerical Office Employees (Class Code 8810)

Clerical roles are considered the safest, with employees performing desk work or administrative tasks. As a result, this class code has the lowest rate at $0.05 per $100 of payroll.

Example:
A company with $600,000 in clerical payroll would pay:
(600,000 ÷ 100) × 0.05 = $300 annually.
Since risks are minimal, premiums for clerical work are a small fraction of what high-risk industries pay.

Why Accurate Classification Matters

Incorrectly classifying employees can lead to overpaying or even penalties during audits. For example, misclassifying a retail worker (low risk) as a warehouse laborer (higher risk) could unnecessarily inflate your premium.

By understanding your workers’ compensation class codes and rates, you can ensure accurate premiums, stay compliant, and save money while providing the coverage your employees need.

How Workers' Compensation Rates Are Set in Texas

A combination of state regulations and insurer-specific adjustments determines workers' compensation rates in Texas. Understanding how these rates are set can help you make informed decisions about your coverage and ensure you’re not overpaying. Here’s a breakdown of the key factors involved in setting workers’ comp rates.

1. Role of the Texas Department of Insurance (TDI)

The Texas Department of Insurance (TDI) plays a pivotal role in regulating and standardizing workers’ comp rates across the state.

• Setting Base Rates: The TDI establishes base rates for different job classifications to ensure fairness and consistency. These rates reflect the level of risk associated with each class code, such as construction work (higher risk) or clerical work (lower risk).
• Monitoring Insurers: TDI oversees insurance providers to ensure they comply with state regulations and don’t unfairly inflate premiums.
• Promoting Safety: The TDI also encourages workplace safety programs, which can reduce claims and influence rates positively for businesses.

The TDI acts as a safeguard, ensuring rates remain fair while allowing flexibility for insurers to account for individual business factors.

2. Factors Insurance Companies Consider in Setting Rates

While the TDI provides base rates, insurance companies use additional criteria to customize rates for each business. Here’s what they look at:

1. Industry and Class Codes:
   The type of work your employees perform (via class codes) is a major factor. Jobs with higher risks, like roofing or masonry, will have higher rates than low-risk roles like office administration.
   
   
2. Claims History:
   If your business has had multiple workers’ comp claims in the past, insurers may charge higher premiums to offset the increased risk. Conversely, a clean claims history can result in discounts.
   
   
3. Payroll Size:
   Premiums are calculated per $100 of payroll. Larger payrolls lead to higher total premiums, even for low-risk jobs.
   
   
4. Experience Modification Rate (ExMod):
   The ExMod is a factor assigned to your business based on your safety record and claims history. A lower ExMod (below 1.0) means fewer claims and lower premiums, while a higher ExMod increases your costs.
   
   
5. Location:
   Some areas in Texas may have higher risks due to local laws, environmental factors, or the frequency of claims in that region. For instance, urban areas with dense populations may have slightly higher rates than rural locations.
   
   

3. Adjustments by Individual Insurance Providers

While the TDI sets the framework, insurance providers have the flexibility to make adjustments based on your business's unique circumstances.

• Tailored Discounts: Insurers may offer discounts for businesses with safety programs, certifications, or proactive risk management measures.
• Bundling Options: Some providers reduce rates if you bundle workers’ comp with other policies, such as general liability or property insurance.
• Claims Trends: If your industry has seen an increase in claims statewide, insurers may adjust rates upward to reflect that trend. Conversely, a reduction in claims can lead to lower rates.

4. Employee Classification Accuracy

Misclassifying employees is one of the most common reasons businesses overpay for workers' comp.

• Low-Risk Jobs, Low Rates: Ensure clerical and other low-risk roles are properly classified to benefit from lower rates.
• Avoid Penalties: Accurate classification prevents costly audits or penalties from insurers.

Need expert guidance to simplify the process? We offer workers' compensation insurance tailored to fit your business needs—at premiums that won't break the bank. Our experts specialize in setting fair rates and guiding you smoothly through the claims process. Contact us today!

How to Calculate Workers' Compensation Premiums with Class Codes

Workers’ compensation premiums are calculated using a straightforward formula, but several factors, like class codes, payroll, and risk modifiers can influence the final amount. Understanding how premiums are determined helps you estimate your costs accurately and avoid surprises. Let’s break it down.

Basic Formula for Estimating Premiums

The general formula to calculate workers’ compensation premiums is:

(Payroll ÷ 100) × Class Code Rate × Experience Modification Rate (ExMod)

Here’s how it works:

1. Payroll: The total payroll for employees in a specific class code.
2. Class Code Rate: A numeric value tied to the level of risk for the job type (e.g., higher for construction, lower for clerical).
3. Experience Modification Rate (ExMod): A factor that adjusts premiums based on your business’s safety record. A lower ExMod (<1.0) means fewer claims and lower costs, while a higher ExMod (>1.0) increases premiums.

Example Calculations for Different Industries

Let’s use this formula to calculate premiums for a few industries with varying risk levels.

1. Machine Shop (Class Code 3632)
   
   some text
   • Payroll: $200,000
   • Class Code Rate: $1.29 per $100 of payroll
   • ExMod: 0.9 (indicating a strong safety record)
2. Calculation:
   (200,000 ÷ 100) × 1.29 × 0.9 = $2,322
   A good safety record reduces the premium from $2,580 to $2,322.
   
   
3. Plumbing Contractors (Class Code 5183)
   
   some text
   • Payroll: $300,000
   • Class Code Rate: $1.47 per $100 of payroll
   • ExMod: 1.1 (indicating a slightly higher claims history)
4. Calculation:
   (300,000 ÷ 100) × 1.47 × 1.1 = $4,851
   A higher ExMod increases the premium from $4,410 to $4,851.
   
   
5. Retail Store (Class Code 8017)
   
   some text
   • Payroll: $500,000
   • Class Code Rate: $0.68 per $100 of payroll
   • ExMod: 1.0 (neutral claims history)
6. Calculation:
   (500,000 ÷ 100) × 0.68 × 1.0 = $3,400
   With a neutral ExMod, the rate remains unaffected.

By understanding the formula and factors behind the premium calculation, you can better manage your workers’ comp costs and make informed decisions to protect your business and employees.

Additional Strategies to Obtain the Best Workers’ Comp Rates

Securing the best workers’ compensation rates requires a thoughtful approach. By exploring your options, tailoring coverage, and leveraging professional advice, you can save money while ensuring your business and employees are well-protected. 

Here’s how:

1. Compare Multiple Quotes from Providers

• Shop Around: Different insurers may assess your risk differently, so compare quotes to find competitive rates.
• Negotiate: Use multiple quotes to negotiate better pricing or additional discounts.
• Look Beyond Price: Evaluate the value of the policy, including coverage options and customer support.

2. Customize Your Policy to Fit Your Business Needs

• Tailored Coverage: Eliminate unnecessary coverage while adding protections that matter most for your industry.
• Adjust Policy Limits: Increase limits for high-risk roles and lower them for low-risk positions.
• Industry-Specific Add-Ons: Include endorsements for specialized risks, like equipment failure or cyber liability.

3. Utilize Professional Advice for Personalized Quotes

• Expert Recommendations: Work with agents or brokers to navigate complex policies and identify gaps.
• Save Time: Let professionals shop around and handle negotiations for you.
• Access Hidden Discounts: Agents often know about deals or credits not advertised to the public.

4. Invest in Workplace Safety Programs

• Reduce Claims: Fewer accidents lead to lower premiums and an improved ExMod.
• Qualify for Discounts: Many insurers offer reduced rates for OSHA compliance or certified safety programs.
• Boost Productivity: A safe environment improves employee morale and reduces downtime.

5. Regularly Review Payroll and Classifications

• Reclassify Roles as Needed: Keep classifications updated to reflect accurate risk levels.
• Check Payroll Accuracy: Avoid overpayment or penalties by ensuring payroll matches reported wages.
• Annual Policy Audits: Regular reviews help identify potential savings and correct discrepancies.

By following these strategies, you can maximize savings while maintaining comprehensive protection for your workforce. A proactive approach ensures your workers’ comp policy fits your unique needs without straining your budget.

And if you’re looking for reliable Texas Workers’ Compensation insurance, TWFG Khan Insurance has you covered! With tailored solutions and competitive rates, we make protecting your business and employees simple and stress-free. 

How TWFG Can Help You with Workers’ Compensation Insurance

Finding the right workers’ compensation insurance can feel overwhelming—sorting through rates, class codes, and coverage options is no small task. That’s where TWFG Khan Insurance comes in. We’re here to make the process simple, tailored, and stress-free so you can try focusing on running your business while we handle your insurance needs.

Why Choose TWFG Khan Insurance?

• Tailored Coverage Just for You
  At TWFG, we don’t believe in cookie-cutter policies. We take the time to understand your business, industry, and unique risks, so we can create a customized workers’ compensation plan that fits your needs—and your budget.
• Competitive Rates with No Surprises
  We work with top-rated insurance providers to secure the best possible rates for your coverage. Plus, we help you avoid overpaying by ensuring your employees are accurately classified and your policy reflects your business’s actual risks.
• Expert Guidance Every Step of the Way
  Whether you’re new to workers’ comp or looking to switch providers, our experienced team simplifies the process. From understanding class codes to calculating premiums, we’ll walk you through every detail and answer all your questions.
• Focus on Compliance and Peace of Mind
  Workers’ compensation laws in Texas can be tricky, but with TWFG, you’ll never have to worry about missing a requirement. We make sure your coverage meets all state regulations, so you stay protected and compliant.
• Fast, Friendly Support When You Need It
  Need help filing a claim or updating your policy? Our team is just a call or email away. We’re committed to providing responsive and reliable service that you can count on.

Ready to experience the difference? Contact TWFG Khan Insurance today and let us help you protect what matters most!

Get your personalized quote today!

Conclusion

When it's about managing your workers’ compensation insurance, getting the details right is crucial. From understanding class codes and rates to implementing strategies that save money, every decision you make impacts your business’s protection and financial health. Ensuring your employees are covered while keeping premiums in check isn’t just about compliance—it’s about peace of mind.

It’s not just about finding a policy—it’s about finding the right partner. A partner who understands your unique needs, helps you navigate complexities, and ensures you’re fully protected. That’s where TWFG Khan Insurance comes in. With personalized solutions, expert advice, and a commitment to your success, TWFG makes securing workers’ comp coverage simple and stress-free. 

Curious to start? Contact us today or visit Twfg Khan Insurance to explore tailored options for your business. Let’s create the perfect policy to protect your team and your bottom line! 

Get a free quote today!