In this guide, we will discuss how to calculate worker’s compensation and how it can impact your business. Worker’s compensation is usually understood as just a requirement of owning a business—but understanding how it’s calculated is key to avoiding unexpected premium bills or audit penalties.
Workers’ comp is particularly complex in states like Maine, where high-risk industries (construction, logging, manufacturing, and fishing) significantly impact statewide rates. Below, we’ll break down the factors that go into costs at a national level and highlight what makes workers’ comp in Maine unique.
How to Calculate Workers' Compensation Costs
To start, there are a few different factors that go into calculating these costs. Each business will have a different premium based on factors such as:
- Your Industry: Riskier roles mean higher rates. Roofing, logging, and seafood processing carry higher premiums
- Payroll Size: More employees = higher total cost (but often lower per-employee rates because of scale)
- Claims History: Fewer claims result in better experience modifier rates (MOD), lowering future costs
- Safety Measures: Implementing training and safety protocols can earn premium credits
Let's take a closer look.
Classifying Business Risk
Insurance companies will give each employer a classification code based on the risk of injury connected to the work being performed. The more dangerous the industry, the higher the class code rate and the higher your premium will be.
In Maine, most industries follow the National Council on Compensation Insurance (NCCI) classification system, but rates are reviewed and approved by the Maine Workers’ Compensation Board. Maine also has an option through MEMIC for employers unable to obtain coverage on the open market—often at a higher cost.
Maine Class Code Examples
Here are a few examples of common Maine NCCI-aligned classifications and the types of work included—check out this sheet for a full list.
| Class Code |
Title |
Example Work in Maine |
| 472021 |
Brickmason,
Blockmason |
Bricklayer |
| 472031 |
Carpenter |
Finished Carpenter |
| 472111 |
Electrician |
Licensed Electrician |
| 339091 |
Flagger |
Crossing Guard |
| 472071 |
Paving Equipment Operator,
Surfacing, Equipment Operator,
Tamping Equipment Operator |
Paver Operator |
| 533032 |
Truck Driver – Heavy,
Tractor-Trailer Driver |
Mixing Truck Driver |
These classifications matter because a carpenter may have a rate many times higher than an office worker, and a roofer may have one of the highest rates in the state due to fall hazards.
2. Annual Payroll Costs
To calculate the estimated annual cost of worker’s comp premiums, employers must use their classification codes, experience mod, and estimated annual payroll costs. Here is the basic formula:
Classification Rate × Experience Mod (Ex-Mod) × (Payroll ÷ 100) = Premium
- Classification Rate: Set by NCCI and approved by the Maine Workers’ Compensation Board
- Experience Mod (Ex-Mod): Experience modification factor (Ex-Mod) is a key element that's assigned to businesses based on their claims history compared to similar businesses in their industry
- Payroll: Based on estimated annual gross wages, including overtime, bonuses, and certain taxable benefits
Maine allows employers to exclude the extra overtime “premium portion.” Example: If overtime is paid at time-and-a-half, only the “straight-time wage” counts toward workers’ comp payroll.
After determining your total annual premium, you can divide it by your number of employees to estimate the cost per person.
3. Conduct Year-End Audits
In Maine, as in all states, your workers’ comp carrier conducts an annual premium audit 30–60 days after your policy ends. They compare estimated payroll at policy start with actual payroll.
- If payroll was overestimated, you get a refund.
- If payroll was underestimated, you owe additional premium.
Some common Maine audit red flags include:
- Misclassifying field employees as clerical
- Failing to verify subcontractor coverage
- Not tracking time spent in different job duties (important in construction)
- Seasonal spikes in payroll (common in tourism, landscaping, and construction)
Understanding Workers' Comp in Maine
It’s important to consider that worker’s compensation can be different in each state. In the state of Maine, worker’s compensation is slightly different. Here are a few examples:
1. Premium Costs Can Be Higher
Because Maine has a large percentage of high-risk jobs—construction, logging, fishing, and manufacturing—workers’ comp rates are often higher than the national average.
2. First Report of Injury Requirements
In Maine:
- Employers must complete a First Report of Injury within 7 days of receiving notice
- Injured employees must notify employers within 60 days of injury
- Failure to file can result in penalties
3. Maine's Workers' Compensation Board
The Maine WCB regulates:
- Class code adoption
- Medical fee schedules
- Dispute resolution
- Employer penalties
- Modifications to NCCI rates
Its five regional offices (Augusta, Bangor, Caribou, Lewiston, Portland) provide worker advocacy and compliance oversight.
4. Who Must Carry Workers' Comp in Maine?
Maine law requires nearly all employers to carry coverage, including:
- Full-time and part-time employees
- Minors
- Agricultural workers (with some exceptions)
- Contractors with employees
- Family members working in the business (unless exempted)
Understanding state-specific rules and regulations can be difficult. At Paper Trails, we offer HR consulting services that can help you maintain compliance and simplify all HR processes, such as Maine rules on Workers' Compensation.
How Can Employers Reduce the Cost of Workers' Compensation Coverage?
The goal of every business owner is to avoid unnecessary costs—and avoid overpaying during audits. Below are strategies particularly relevant to Maine employers.
- Estimate and Run Payroll Correctly - Employers should actively monitor their payroll reports to ensure that all data is correct, as any mistakes in payroll will be reflected in workers’ compensation premiums.
- Review Job Classifications - There are many common misclassifications that can affect workers’ comp calculations. Examples include seasonal employees listed as permanent employees, full-time employees who switch to part-time employees, and listing an independent contractor as a full-time employee.
- Check Insurance Premiums Regularly - There are a few clear indicators that your workers’ comp premium may not be calculated correctly. Construction employers should pay attention to things like changes in payroll, such as new hires, layoffs, or shifting job roles; unexpected jumps in premium bills; or charges for subcontractors who already carry their own coverage.
- Consider “Pay-As-You-Go” Solutions - Pay-as-you-go workers’ comp connects directly to payroll, using real-time payroll data to calculate premiums more accurately. This helps reduce surprises during audits.
What is Workers' Comp Pay-As-You-Go?
Workers’ comp pay-as-you-go is a way to pay your workers’ compensation insurance in real time with each payroll, instead of making a big lump-sum payment based on an annual estimate. Your premium is calculated on your actual payroll and job classifications each pay period, which helps improve cash flow and reduces the risk of surprise bills or refunds after a year-end audit.
Pay-as-you-go workers’ comp is still based on the same idea—protecting employees if they’re hurt on the job by covering medical bills, lost wages, and related costs—but it’s usually paid upfront based on what you think you’ll pay in wages. Pay-as-you-go simply changes how you fund that coverage, making it more accurate and flexible for growing or seasonal businesses.
Year-end audits still occur, but often the discrepancies found during these audits are very minimal.
How Much Does Workers' Comp Pay in Benefits?
Workers’ comp benefits depend on your Average Weekly Wage (AWW) prior to the injury. Most employees receive 2/3 of their AWW. As of July 1, 2025, Maine’s State Average Weekly Wage (SAWW) is $1,198.84. This acts as a cap for weekly benefits.
Total vs Partial Disability in Maine
In Maine, workers’ compensation benefits vary depending on whether an employee is fully unable to work or can return in a limited capacity.
Total Disability
When an employee is completely unable to work because of a work-related injury, Maine classifies this as total disability. In these cases, the employee receives two-thirds of their Average Weekly Wage (AWW), up to the statewide maximum known as the State Average Weekly Wage (SAWW). This benefit is meant to replace a portion of lost earnings while the employee recovers. Total disability benefits can continue as long as the employee remains unable to perform any kind of work.
If an employee earned $1,000 pre-injury and can not work to earn anything, this employee would earn $666.67/week (2/3 of $1,000).
Partial Disability
If an employee can return to work but earns less than they did before the injury—either because they’re working fewer hours or performing lighter-duty tasks—Maine classifies this as partial disability. The benefit calculation here is slightly different. Instead of paying two-thirds of the full AWW, the employee receives two-thirds of the difference between their pre-injury weekly earnings and their current post-injury earnings. This helps make up the gap in income created by the injury while still encouraging a return to work when medically possible.
If an employee earned $1,000 pre-injury but can now earn only $600. The difference is equal to $400. This employee would earn $266.67/week (2/3 of $400) on top of the $600 in wages he is making for working.
Workers' Comp Calculation FAQs
How does payroll impact your workers' comp rate?
Workers’ comp premiums in Maine are calculated based on your gross payroll, including wages, overtime, bonuses, and certain taxable benefits. If your payroll estimate is too high or too low, your premium will be inaccurate, leading to refunds or unexpected bills during the annual audit. Keeping payroll precise and up to date is one of the easiest ways to prevent premium miscalculations.
What are workers' comp class codes?
Class codes represent the risk levels associated with specific job duties and industries. Higher-risk roles—like roofing, trucking, or heavy equipment operation—carry much higher rates compared to clerical or administrative positions. Each class code has its own dollar rate per $100 of payroll, and using the wrong one can dramatically increase your costs or trigger issues during an audit.
What is an experience modification (ex-mod) rate?
Your Ex-Mod compares your company’s claims history to similar businesses in Maine over the past three years. A lower mod (below 1.0) can lower your premium, while a higher mod (above 1.0) increases your costs. The mod rewards employers with strong safety records and penalizes those with frequent or severe claims.
Do subcontractors count as employees under Maine law?
Yes—if a subcontractor cannot provide a valid Certificate of Insurance (COI) showing they have their own workers’ comp coverage, they are treated as your employee for workers’ comp purposes. During an audit, the carrier will add the subcontractor’s payroll to your policy, which can significantly increase your premium. Always collect COIs before work begins to avoid surprises.
Do all employees need workers' comp coverage?
Yes. Maine requires workers’ compensation coverage for nearly all employees, regardless of hours worked or age. This includes summer help, interns, minors, and seasonal workers—common in hospitality, landscaping, and construction. Not having coverage can lead to major penalties and personal liability for injuries.
How long can employees collect workers' comp benefits in Maine?
Employees with total incapacity may receive benefits as long as they are unable to work. Partial disability benefits can last up to 624 weeks, depending on injury date and impairment level. Maine also allows extensions in cases of extreme financial hardship or high permanent impairment.
Conclusion
In the end, understanding and correctly calculating workers’ compensation is very important to any business owner or employer. Workplace injuries can happen unexpectedly, sometimes when you least expect it. As an employer, preparing yourself and understanding code rates, premiums, and mod guidelines will help you in correctly paying your employees and help keep your payroll accurate. Which ultimately will lead to avoiding unnecessary costs during annual audits.
Written November 2025
