If you’re a contractor wondering why your workers’ compensation premiums keep going up, or why you lost a bid because of a number you didn’t understand, this guide is for you.
Your Experience Modification Rate (EMR) might be the most important number in your construction business that you’ve never fully understood. It directly impacts your insurance costs, your ability to win bids, and ultimately, your bottom line.
In this guide, we’ll break down everything you need to know about EMR in simple terms, show you exactly how it affects your business, and give you actionable strategies to improve it.
- What is EMR?
- Why EMR Matters for Contractors
- How is EMR Calculated?
- What’s a Good EMR for Construction?
- How EMR Affects Your Premiums
- Contractor Examples
- How to Lower Your EMR Common EMR Myths
- Frequently Asked Questions
- Take Action Today
What is EMR?
EMR stands for Experience Modification Rate (also called Experience Mod, X-Mod, Ex-Mod, or just “Mod”). Think of it as your company’s safety report card that insurance companies use to adjust your workers’ compensation premiums.
In simple terms: EMR is a number that compares your company’s workers’ comp claims to other similar businesses.
- EMR of 1.0 = Your claims are average for your industry
- EMR below 1.0 = You have fewer claims than average (this is good!)
- EMR above 1.0 = You have more claims than average (this costs you money)
Quick Example:
Imagine two roofing contractors:
- ABC Roofing has an EMR of 0.80
- XYZ Roofing has an EMR of 1.20
If the base workers’ comp rate is $10,000, here’s what each pays:
- ABC Roofing: $10,000 × 0.80 = $8,000 (saves $2,000)
- XYZ Roofing: $10,000 × 1.20 = $12,000 (pays $2,000 extra)
That’s a $4,000 difference for the same coverage!
Why EMR Matters for Contractors
Your EMR affects your construction business in three critical ways:
1. Direct Impact on Insurance Costs
Every point above or below 1.0 directly increases or decreases your workers’ comp premiums. For a company with $100,000 in base premiums, a 0.10 difference in EMR equals $10,000.
2. Ability to Bid on Projects
Many general contractors and project owners require subcontractors to have an EMR below a certain threshold, typically 1.0 or lower. A high EMR can disqualify you from lucrative projects before they even look at your bid.
3. Business Reputation
Your EMR is publicly available information. Potential clients often check it as a measure of your safety practices and professionalism. A low EMR signals that you run a safe, well-managed operation.
How is EMR Calculated?
While the exact formula is complex, understanding the basics helps you influence your rate. Here’s what goes into your EMR:
The Basic Formula Components:
1. Your Actual Losses
- All workers’ comp claims from the past 3 years (not including the most recent year)
- Both medical costs and lost wages
- Reserves for open claims
2. Your Expected Losses
- What similar companies typically experience
- Based on your payroll and classification codes
- Adjusted for your industry and state
3. The Calculation
EMR = Your Actual Losses / Expected Losses
Important Details:
- Experience Period: Uses 3 years of data (excluding the most recent)
- Claims Cap: Large claims are capped to prevent one incident from destroying your EMR
- Frequency vs. Severity: Multiple small claims hurt more than one large claim
- Primary vs. Excess Losses: The first $18,500 of each claim (primary losses) impacts your EMR more heavily
Real Calculation Example:
Johnson’s Plumbing over 3 years:
- Actual Losses: $45,000
- Expected Losses: $50,000
- EMR = $45,000 ÷ $50,000 = 0.90
This 0.90 EMR means they pay 10% less than the average plumbing contractor for workers’ comp.
What’s a Good EMR for Construction?
EMR benchmarks vary by trade and region, but here’s what’s generally considered good, average, and poor:
EMR Benchmarks by Category:
EMR Range | Rating | What It Means |
---|---|---|
0.70-0.79 | Excellent | Top 10% safety performance |
0.80-0.89 | Very Good | Significant premium savings |
0.90-0.99 | Good | Better than average |
1.00-1.09 | Average | Industry standard |
1.10-1.19 | Below Average | Paying premium penalty |
1.20+ | Poor | Major cost increase, may lose bids |
Industry-Specific Benchmarks:
Different construction trades have different “normal” EMRs:
- Electrical Contractors: Average 0.95
- Plumbing Contractors: Average 0.98
- Roofing Contractors: Average 1.05
- General Contractors: Average 0.92
- Concrete/Foundation: Average 1.08
Note: These are general ranges. Your state and specific classification affect benchmarks.
What Major Contractors Require:
Many large GCs and project owners set EMR requirements:
- Commercial Projects: Usually require EMR < 1.0
- Government Projects: Often require EMR < 0.90
- High-Risk Projects: May require EMR < 0.85
How EMR Affects Your Premiums
Let’s look at exactly how EMR impacts your workers’ comp costs with real numbers:
Premium Calculation Formula:
Premium = (Payroll ÷ 100) × Base Rate × EMR
Real-World Example:
Smith Construction has:
- Annual Payroll: $1,000,000
- Base Rate: $8.50 per $100 of payroll
- EMR: Changes based on claims
Here’s how different EMRs affect their premium:
EMR | Calculation | Annual Premium | Difference from 1.0 |
---|---|---|---|
0.75 | ($1M ÷ 100) × $8.50 × 0.75 | $63,750 | Saves $21,250 |
0.90 | ($1M ÷ 100) × $8.50 × 0.90 | $76,500 | Saves $8,500 |
1.00 | ($1M ÷ 100) × $8.50 × 1.00 | $85,000 | Baseline |
1.15 | ($1M ÷ 100) × $8.50 × 1.15 | $97,750 | Costs $12,750 extra |
1.30 | ($1M ÷ 100) × $8.50 × 1.30 | $110,500 | Costs $25,500 extra |
The Compound Effect:
Remember, EMR affects you for multiple years:
- Year 1 claim affects Years 2-5
- Multiple claims compound the impact
- A bad year can haunt you for 4+ years
Contractor Examples
Let’s look at how EMR played out for actual contractors:
Success Story: Martinez Electrical
Starting Point (2019):
- EMR: 1.25
- Annual Premium: $125,000
- Lost 3 major bids due to high EMR
Actions Taken:
- Implemented daily safety meetings
- Created return-to-work program
- Invested in safety training
- Better claim management
Results (2023):
- EMR: 0.82
- Annual Premium: $82,000
- Saved $43,000/year
- Now qualifies for all major projects
Cautionary Tale: Ace Roofing
Starting Point (2020):
- EMR: 0.95
- Annual Premium: $57,000
- Steady work, good reputation
What Went Wrong:
- 3 falls in 6 months
- No formal safety program
- Poor claim management
- Ignored light-duty options
Results (2024):
- EMR: 1.35
- Annual Premium: $81,000
- Pays $24,000 more annually
- Lost general contractor approval
Turnaround Story: Premier Plumbing
The Situation:
- 2018 EMR: 1.18 (paying 18% extra)
- Considering closing due to high costs
The Fix:
- Hired safety consultant
- Challenged claim reserves
- Implemented drug testing
- Created light-duty program
The Outcome:
- 2023 EMR: 0.91
- Saved $35,000 annually
- Won hospital project bid
- Expanded to 25 employees
How to Lower Your EMR
Here are proven strategies to reduce your EMR:
1. Prevent Claims Before They Happen
- Daily toolbox talks
- Job hazard analysis
- Proper safety equipment
- Regular training updates
2. Manage Claims Aggressively
- Report immediately (same day)
- Provide light-duty options
- Stay involved in treatment
- Challenge questionable claims
3. Focus on Frequency
- Three $5,000 claims hurt more than one $15,000 claim
- Target your most common injuries
- Address near-misses
4. Implement Return-to-Work Programs
- Reduces claim costs by 30-40%
- Keeps employees engaged
- Shows commitment to workers
5. Review Your EMR Worksheet
- Check for errors (they’re common)
- Verify claim amounts
- Ensure proper classifications
6. Consider Strategic Timing
- Large projects affect future EMR
- Subcontractor vs. employee decisions
- Deductible programs for large contractors
Common EMR Myths
Let’s bust some misconceptions about EMR:
Myth #1: “EMR Only Looks at Last Year”
Truth: EMR uses 3 years of data (typically years 2-4 prior)
Myth #2: “All Claims Affect EMR Equally”
Truth: Frequency matters more than severity; medical-only claims have 30% impact
Myth #3: “EMR of 1.0 is Bad”
Truth: 1.0 is average, many successful contractors operate at 1.0
Myth #4: “You Can’t Change Your EMR Quickly”
Truth: One good year can significantly improve your rate
Myth #5: “Small Companies Don’t Get EMRs”
Truth: Most states assign EMRs once you hit $10,000-15,000 in premiums
Frequently Asked Questions
When do I get an EMR?
Most contractors receive an EMR once their annual premiums exceed the state threshold (typically $10,000-15,000) for two years.
How often is EMR updated?
Your EMR is recalculated annually, usually 60-90 days before your policy renewal.
Can I get my EMR below 1.0 immediately?
No, EMR reflects 3 years of history. Improvements take time but start impacting your rate the following year.
What if I have no claims?
The lowest possible EMR varies by state but typically ranges from 0.70-0.75, even with zero claims.
Can I operate without an EMR?
New contractors often start at 1.0 or use their state’s “new business” rate until they qualify for experience rating.
Does EMR transfer if I change insurance companies?
Yes, your EMR follows your business, not your insurance carrier.
Take Action Today
Your EMR directly impacts your construction business’s profitability and growth potential. Here’s what to do next:
- Get your current EMR worksheet from your insurance agent
- Review it for accuracy using this guide
- Identify your biggest claim drivers
- Implement at least one safety improvement this week
- Track your progress monthly, not annually
Remember: Every point reduction in your EMR equals real money in your pocket and more opportunities to grow your business.
Need help understanding your EMR or reducing your workers’ comp costs? Contact us for a free EMR analysis and discover how much you could save.