On what factor is the cost of workers' compensation primarily based?

The cost of workers' compensation is primarily based on employee salaries, also known as wages. This correlation arises because the premiums businesses pay for workers' compensation insurance are often calculated as a percentage of the total payroll. Higher salaries generally lead to higher premiums, reflecting the greater potential compensation costs associated with injuries or illnesses that an employee may encounter on the job.

When an employee is injured, the compensation awarded usually corresponds to their wages, including medical benefits and disability payments. Therefore, as payroll increases due to higher salaries, so does the risk and potential cost to the insurance provider, which is why wages play a critical role in determining the overall cost of workers' compensation insurance for a business.

Other factors such as the nature of the job (which may relate to job title) and the incidence of workplace injuries can influence rates, but the fundamental basis for calculating premiums is grounded in the salaries paid to employees. This ensures that as a company's wage obligations rise, their insurance costs similarly reflect that increased responsibility.