How to Buy Workers' Comp Insurance in California

Two California workers were injured at a construction site for a new Facebook building when an equipment failure caused part of the structure to collapse. The two construction workers were injured when they fell about 40 feet while assembling the structure’s steel frame. Fire officials said a steel beam dropped nearly 20 feet, catching on a lower floor assembly and sending the workers toward the ground. The workers’ safety harnesses probably saved their lives. 

These kinds of incidents highlight the need for a remedy when workers are injured on the job. While construction workers face a greater risk for injuries at work, accidents happen all the time, even in very safe workplaces. And injuries need not be severe or life threatening to be costly for everyone involved. 

When workers become ill or are injured in the workplace, workers’ compensation insurance is there to provide wage replacement and medical treatment benefits so employees can recover without the cost burden.  

California Workers’ Compensation Laws

The California workers’ compensation laws require employers to provide no-fault insurance against workplace injuries and illnesses. In return, employers are not subject to lawsuits that could be filed by employees who get hurt or sick while on the job. Failing to have workers’ compensation insurance in California is a criminal offense. Moreover, employers cannot require employees to pay for or offset the cost of the policy, and benefits must cover all workers. 

The California Division of Workers’ Compensation oversees the administration of claims and runs the workers’ compensation court system that resolves disputes over benefits. It is illegal to punish or fire an employee for filing a workers’ compensation claim. 

The Basics of California Workers’ Compensation

Who Is Covered? 

All employers in California with one or more full- or part-time employees must purchase workers’ compensation insurance. In addition, there are certain exemptions and special circumstances that employers should be aware of:

• Sole proprietors are exempt from coverage but can elect to be included.
• Partners are included in workers’ compensation coverage and cannot elect to exempt themselves.
• Executive officers and directors of corporations must be included in workers’ compensation coverage, unless the corporation is fully owned by the directors and officers. If the directors and officers fully own the corporation, they may elect to be excluded from workers’ compensation benefits. 
• All LLC members who work in the business are included in coverage; non-working LLC members are excluded from workers’ compensation coverage but can elect to be included.

What Is Covered?

California workers’ compensation insurance provides benefits for work-related injuries or illnesses. Benefits include:

Where Can You Buy It? 

California employers can purchase workers’ compensation insurance through an agent or broker from any licensed insurer authorized to write workers’ compensation insurance policies in California. 

Employers also can get coverage from the State Compensation Insurance Fund (SCIF), which was created by the California legislature in 1914 to ensure that all employers would have access to workers’ compensation insurance. SCIF is a state-operated entity that competes with private insurers and also operates as the insurer of last resort for employers who cannot obtain workers’ compensation policies from private insurers. 

Employers who meet certain financial requirements can self-insure with approval by the director of the Department of Industrial Relations. In addition, smaller employers can join approved self-insurance pools. 

How Much Does California Workers’ Compensation Insurance Cost? 

California workman's comp rates are set and regulated by the Workers’ Compensation Rating Bureau of California. High-risk occupations have higher premiums than lower-risk occupations. Employers who establish a good safety record will be rewarded with lower premiums than others in their industry. 

Every occupation is assigned a risk classification, and each classification is associated with a specific dollar amount—or base rate—based on how risky that occupation is. 

An employer’s workman's comp insurance premium is determined by its class code, number of employees, total payroll, type of jobs performed, and the employer’s history of accidents and workers’ compensation claims. 

Here is a sample illustration of how an individual employer’s workers’ compensation premium would be determined in California:

An employer may have more than one classification that is included in its workers’ compensation premium calculation. All of an employer’s classifications and related premiums are combined to determine the full workman's comp premium. 

California Workers’ Compensation 2017 Base Rate Examples

California workman's comp base rates vary by class code and insurance company underwriting guidelines. Experience rating is available for some employers. 

California workers’ compensation insurance is the most expensive in the U.S., but rates can vary significantly between insurance companies. The workers’ compensation market in California is volatile, and insurance companies frequently enter and exit the market.  

Here are a few sample 2017 base rates (rate per $100 of employer payroll) for select California class codes:

What Is Experience Rating and How Does It Affect Your Premium?

Employers with an annual premium greater than a certain amount are usually eligible for experience rating, which adjusts the premium up or down depending on the employer’s claims history relative to similar employers (similar size and industry). 

In these cases, an experience modification factor—or experience mod—is added to the premium calculation formula described above. That factor increases or decreases an employer’s workers’ compensation premium in a given year. 

Your mod is a numerical representation of your workers’ compensation claims experience compared to similar employers. Your losses are compared to the expected losses for your industry. Your workers’ compensation premium will increase or decrease depending on your mod. 

Experience-rated workers’ compensation premiums are determined using the following formula:

The mod represents a debit or credit that is applied to your workers’ compensation premium.

Experience rating can impact your California workmans’ comp insurance premium as follows:

Employers in California must meet or exceed a minimum eligibility threshold of $10,100 in qualifying payroll (the result of a complex formula) in order to qualify for experience rating.

How to Find California Workers’ Compensation Insurance 

California workers’ compensation is complex, yet as an employer you must purchase it in order to protect your business and employees. This article offers simplified examples and calculations, but an independent insurance agent can provide the details you need to make an informed decision about the right workers’ compensation policy for your needs. 

An independent insurance agent who is licensed to sell workers’ compensation insurance in California can help you. Contact an agent to start you search now.