The premium formula
NCCI's ABCs of Experience Rating: the state-approved rate for each classification is applied per $100 of payroll.
Premium for a class = (payroll ÷ 100) × rate
Compute each classification, sum them, then multiply the total by the experience mod.
Example: Clerical payroll $70,000 at a rate of 0.750. 70,000 ÷ 100 = 700; 700 × 0.750 = $525.
Traps:
- $52.50 applies the rate per $1,000 of payroll, a listed common error.
- $52,500 applies the rate to the whole payroll rather than per $100, also a listed error.
- $5,250 is a misplaced decimal, ten times too high.
Two classes and a mod
Clerical $70,000 at 0.750 and Roofer $200,000 at 63.171, mod 1.25:
- Clerical: 70,000 ÷ 100 × 0.750 = 525
- Roofer: 200,000 ÷ 100 × 63.171 = 126,342
- Sum: 126,867
- Modified: 126,867 × 1.25 = 158,583.75, rounded to $158,584
Traps: stopping at $126,867 forgets the mod. $95,150 multiplies by 0.75, treating a debit mod as a credit. $15,858 applies the rates per $1,000 instead of per $100. The mod multiplies the summed premium for all classifications, not one class.
Unity, credit, debit
- 1.00 is unity: premium unchanged.
- Below 1.00 is a credit mod: lowers premium.
- Above 1.00 is a debit mod: raises premium.
On a $100,000 premium, a 0.75 mod gives 100,000 × 0.75 = $75,000, a credit mod. A 1.25 mod gives $125,000, a debit mod.
Reading the direction
A mod rising from 1.00 to 1.25 is a debit mod and raises the premium. Reading a mod above 1.00 as favorable is a listed common error. Calling 0.75 a debit mod reverses the terms, and saying mods apply only above 1.00 ignores that credit mods below 1.00 reduce premium. The NCCI rates of 0.750 and 63.171 are NCCI's illustrative example.