Workers' compensation is not optional for most employers in North Dakota and Minnesota — it's a legal requirement, and the consequences of operating without it range from fines to personal liability for employee injury costs. But beyond compliance, workers' comp is also one of the policies most frequently misunderstood and most frequently priced incorrectly. Overpaying because of classification errors is common. Underpaying — which creates audit risk — is equally common. Understanding how workers' comp is structured, calculated, and administered in each state is worth your time as an employer.
How North Dakota Workers' Comp Works
North Dakota operates one of the few remaining state-monopoly workers' compensation systems in the country. All ND employers are required to purchase workers' comp through WSI — Workforce Safety & Insurance, the state fund. There is no private market alternative. You cannot shop your North Dakota workers' comp to multiple carriers, and no broker can place it elsewhere.
This creates a simplified administrative situation in some ways — there's one place to buy and one place to file claims. But it also means there's limited competitive pressure on pricing, and the focus shifts to making sure your payroll is classified correctly and that you're taking advantage of any available safety discount programs.
If you're operating in Minnesota but not North Dakota, you have access to the private market, which creates more flexibility. If your business straddles both states — employees working in both ND and MN — you may need coverage in both states, and the administration gets more complex.
How Minnesota Workers' Comp Works
Minnesota workers' compensation is purchased through the private market. You can work with an independent broker to shop your policy to multiple carriers, which creates the ability to compare pricing, coverage terms, and carrier quality.
Minnesota requires most employers to carry workers' comp if they have at least one employee. Exceptions exist for sole proprietors with no employees, certain agricultural operations, and a handful of other specific categories — but if you have employees, assume you're required to carry it.
The basic coverage structure is the same as North Dakota: medical expenses for work-related injuries and illnesses, and a portion of lost wages while the employee recovers (typically 2/3 of their average weekly wage, subject to state maximum amounts).
What Workers' Comp Covers
Workers' compensation covers your employees when they're injured or become ill as a direct result of their work. Covered events include:
- Acute injuries from accidents (falls, equipment injuries, vehicle accidents during work tasks)
- Repetitive stress injuries (carpal tunnel from keyboard use, back injuries from repeated lifting)
- Occupational illnesses (respiratory conditions from workplace exposure)
- Injuries that occur on the way to or from a work-related task (the "coming and going" rule has nuances — consult your advisor)
The policy pays medical treatment costs without a deductible for the employee, and it pays a portion of their wages during the recovery period. In exchange, the worker generally cannot sue your business for additional damages — the workers' comp system is designed to be the exclusive remedy for work-related injuries.
Workers' comp also includes employer's liability coverage, which responds to certain lawsuits that fall outside the exclusive remedy protections. This is typically included in the standard workers' comp policy.
How Premiums Are Calculated
Workers' comp premiums are calculated using a formula: payroll × classification rate × experience modifier.
Payroll is the base — the more people you pay, the more premium you pay. Carriers and WSI use your annual payroll as the exposure base.
Classification codes assign each type of job to a category with a specific rate. A clerical worker in an office carries a much lower rate than a roofing laborer. Each classification reflects the historical injury frequency and severity for that type of work. Using the wrong classification — whether higher or lower than your actual operations — creates either overpayment or audit exposure.
Experience modifier (e-mod) is a multiplier based on your claims history relative to other businesses in your industry. A perfect history yields a 1.0 modifier (neutral). A business with above-average claims gets a modifier above 1.0 (higher premium). A business with a cleaner-than-average history gets below 1.0 (discount). Over time, safety culture has direct financial consequences through the e-mod.
Common Classification Errors That Lead to Overpaying
Payroll classification is where workers' comp often gets mispriced. The most frequent errors:
Clerical employees classified under operational codes: If your office manager is classified under the same code as your field crew, you're overpaying significantly. Clerical rates are a fraction of field rates.
Owners or executives included at full payroll: Many states allow business owners to exclude themselves from workers' comp, or to include themselves at a capped executive payroll amount (not their full salary). Confirm with your advisor whether you have the option to exclude or cap your own payroll.
Incorrect primary classification for your business: Sometimes a business gets assigned a classification based on what the carrier assumed about operations, not what the business actually does. A review of your classification codes is a standard part of a commercial program review.
Subcontractors treated as employees: If you use subcontractors who carry their own workers' comp coverage, you should be able to exclude their payroll from your audit base. Failure to get certificates of insurance from subcontractors results in their payroll being added to your workers' comp premium at audit.
The Relationship Between Workers' Comp and General Liability
Workers' comp and GL work alongside each other but cover different scenarios. Workers' comp covers employee injuries. GL covers third-party injuries (clients, customers, visitors). They're complements, not alternatives.
One area of potential confusion: if an employee is injured while working at a client's location, the employee files for workers' comp benefits. But the client may also have a claim — for example, if they allege your employee's injury was caused by a hazardous condition your business was responsible for. That third-party claim goes to your GL policy.
Make sure both policies are in place if you have employees who work at client locations. Either gap creates exposure.
Audit Risk and How to Manage It
Most workers' comp policies are subject to an annual audit. At the end of the policy year, the carrier reviews your actual payroll to compare it against the estimated payroll used to set your initial premium. If your actual payroll was higher, you owe the difference. If it was lower, you receive a credit.
Businesses that grow significantly during a policy year often face large audit bills — sometimes thousands of dollars — because the policy was priced on projected payroll that didn't keep up with actual growth. The risk management approach: update your payroll estimates with your advisor when headcount or wages change materially during the year, rather than waiting for the audit surprise.
If you have questions about your workers' comp classification, your North Dakota WSI account, or your Minnesota workers' comp renewal, that's exactly the type of review worth scheduling. Visit /business-insurance to understand the full commercial program context, or schedule a conversation to look at your specific situation.
Kain Carlson is an independent insurance advisor based in Fargo, ND, licensed in North Dakota and Minnesota. He works with owner-operated businesses across all three coverage pillars — commercial, benefits, and personal — under one advisory relationship. Schedule a review to see where your coverage stands.