A contractor’s General Liability premium is not based on one single factor.
Insurance companies usually evaluate the actual business exposure.
Depending on the type of business, the premium may be based partly on:
Payroll
Common for many contractors.
Gross Sales or Revenue
Common for certain businesses and contractor classifications.
Subcontractor Cost
Especially important when the insured hires subcontractors.
Square Footage
Common for certain premises-based businesses.
Number of Employees or Units
Used for some classifications.
The insurance company assigns classification codes based on the actual work performed.
A roofer, electrician, carpenter, landscaper, plumber, HVAC contractor, painter, and general contractor will not necessarily be rated the same way.
Higher-hazard work generally produces a different rate than lower-hazard work.
Why Does the Insurance Company Ask About Annual Payroll?
Payroll gives the insurance company an indication of the amount of employee work being performed.
For Workers’ Compensation, payroll is one of the primary rating exposures.
The basic concept is generally:
Payroll ÷ $100 × Rate
For example:
If a class has:
$200,000 payroll
and the applicable rate is:
$5.00 per $100 of payroll
the starting manual premium calculation would be approximately:
$200,000 ÷ 100 × $5.00 = $10,000
Other rating factors, credits, debits, experience modification, expenses, minimum premiums, and state-specific charges can change the final premium.
NCCI requires estimated annual payroll by applicable classification code when Workers’ Compensation risks are submitted for rating.