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Understanding EMOD: A Practical Guide for Contractors

If you’re a contractor running a growing business, you’ve probably noticed that your workers’ compensation insurance premiums don’t always make sense at first glance. One of the biggest behind-the-scenes drivers of your premium is something called the Experience Modification Factor, or EMOD. If you’re not already tracking and actively managing your EMOD, you could be leaving thousands of dollars on the table.

This guide will break down what an EMOD is, how it affects your business, and most importantly, what you can do to keep it in check.

What Is an EMOD?

The Experience Modification Factor (EMOD) is a numeric rating used by insurance companies to adjust your workers’ compensation premiums based on your company’s historical claim experience. It compares your company’s claims history to the average in your industry.

  • A 1.0 EMOD is considered average.
  • Below 1.0 means you’re doing better than average—you’ll pay less.
  • Above 1.0 means you have more claims than average—you’ll pay more.

Example: If your EMOD is 1.25, you pay 25% more than a similar company with a 1.0 EMOD.

Why Is It Important for Contractors?

In labor-intensive industries like construction, your EMOD can dramatically affect your bottom line. Workers’ comp premiums are already one of your largest insurance costs, and your EMOD has a direct multiplier effect on those premiums.

Why you should care:

  • Your EMOD affects your bidding power. General contractors and municipalities often screen out high-EMOD subcontractors.
  • It impacts your profit margins. Even a small increase in your EMOD can cost you thousands annually.
  • It influences how insurers underwrite your policy and the discounts they offer you.

How Is EMOD Calculated?

The EMOD formula is complex, but here are the basics:

  • It looks at the past 3 years of claim history, not including the current policy year.
  • Both frequency (number of claims) and severity (cost of claims)
  • It is industry-adjusted to compare similar businesses.
  • The formula favors frequency over severity. This means multiple small claims hurt you more than one large claim.

Calculation timing: Most states calculate EMODs annually, usually a few months before your policy renewal. It is a best practice to review your EMOD worksheet with your agent and your insurance company 6 months before renewal.

How Your EMOD Impacts Workers’ Comp Premiums

Here’s how your EMOD factors into your premium:

Workers Comp Premium = Manual Rate x Payroll x EMOD

Let’s break this down:

  • Manual Rate is based on your class code (e.g., HVAC installation, service, etc.).
  • Payroll is the total amount paid to employees in that class code.
  • EMOD adjusts the premium up or down based on claims history.

Financial Example:

  • Contractor A has an EMOD of 0.85 and pays $150,000 in annual premium.
  • Contractor B has an EMOD of 1.25 and the same payroll and class code.

Contractor B pays $70,000 more per year ($150,000 x 1.25 = $187,500) than Contractor A ($150,000 x 0.85 = $127,500).

Multiply that by 3-5 years, and you can see how costly it becomes.

What Drives a High EMOD?

Several key issues can cause your EMOD to climb:

  • Frequent small claims (cuts, strains, trips)
  • Poor return-to-work practices
  • Lack of documented safety training
  • Delays in reporting injuries
  • Failure to contest fraudulent claims

How Construction Business Owners Can Lower Their EMOD

Here’s the good news: your EMOD is within your control. With the right strategies, you can lower it over time.

  1. Implement a Safety Program (make sure it is written and followed)
    • Conduct regular safety meetings
    • Provide proper PPE (gloves, eye protection, etc.)
    • Tailor safety training to specific hazards (e.g., ladder use, confined spaces, heavy equipment usage)
      • Keep a record of who participates in trainings
    • Conduct periodic inspections of jobsites
    • Have an incident reporting procedure in place
    • Maintain a vehicle/driver safety policy that all driver must comply with
    • Maintain a hazardous communications policy
    • Download a safety manual template here: https://www.lebaroncarroll.com/employee-safety-manual-for-construction/
  2. Return-to-Work Program
    • Get injured workers back on light duty as soon as safely possible
    • Helps reduce claim severity
    • If even $1 of lost wages are paid (this is called indemnity), the claim will have a far more significant effect on your EMOD than a claim than only paid out medical costs.
      • For more details on the impact of indemnity vs medical-only claims, see this article: https://www.lebaroncarroll.com/the-smart-employers-guide-to-lowering-work-comp-costs/
    • Download a sample Return-to-Work program here: https://www.lebaroncarroll.com/return-to-work-program-template/
  3. Prompt Claims Reporting
    • Report all injuries immediately
    • Early intervention often reduces claim costs dramatically
  4. Work with an EMOD-Savvy Insurance Advisor
    • Make sure your insurance advisor discusses and reviews your EMOD worksheet with you at least annually. Multiple reviews throughout the year are even more beneficial.
    • Check for errors and make sure claims are closed promptly. High reserves for open claims are particularly harmful to your EMOD.
  5. Monitor Subcontractors
    • If you use subcontractors, make sure they carry their own coverage
    • Their claims shouldn’t count against your EMOD

Real-World Impact: A Case Study

An HVAC contractor with 15 employees and $1.5M in payroll had an EMOD of 1.38. After implementing a safety training program, return-to-work policy, and working with a proactive insurance advisor, their EMOD dropped to 0.94 over three years.

Premium Savings: Over $40,000/year

Bonus: They started winning more bids with GCs who required EMODs under 1.0.

Action Items: What You Can Do Right Now

  1. Request your EMOD worksheet from your insurance agent
  2. Analyze your last 3 years of claims for patterns
  3. Start a basic safety program (document everything)
  4. Set up a return-to-work policy for injured employees
  5. Train supervisors on injury reporting procedures
  6. Review claims monthly and work with your agent to close old claims
  7. Benchmark your EMOD against others in your industry
  8. Schedule a call with your insurance advisor to build a 12-month EMOD improvement plan

Bottom Line: Your EMOD isn’t just a number—it’s a reflection of your business’s safety culture and claims management. Lowering it takes focus and consistency, but the payoff is well worth the effort.

By managing your EMOD effectively, you’ll lower your insurance costs, become more competitive on bids, and build a safer, more productive workforce.

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