Workers Comp Blog

California Wokers Comp Necessary Questions and Answers

As a business owner, one of your main goals and responsibilities is to provide a safe and healthy working environment for your employees. Despite all your best efforts, though, sometimes accidents still happen. When your employees get injured or sick on the job, workers comp insurance can help protect you and your business. Workers comp covers your employees’ medical costs as well as covers your legal fees should they file a lawsuit. Let’s explore the details of California workers comp coverage and what you need to know to get started!


Who Needs Workers Comp?

In California, every business owner with one or more employees must have workers comp coverage, as required by state law. Since workers comp is state regulated, each state varies in their requirements so be sure to check with an insurance agent about your state’s workers comp laws. Because California requires workers comp coverage, failure to do so results in costly penalties that could easily financially cripple any business. Such penalties include being subjected to:

  • A misdemeanor charge which could result in up to a $10,000 fine or one year in county jail, or both.
  • A stop order issued by the Division of Labor Standards Enforcement which prohibits you from using employee labor until workers comp coverage is in place. If you do not comply, you would then be penalized, either with a fine of no less than $10,000 or a sentence of 60 days in county jail, or both.
  • An additional fine issued by The Division of Labor Standards Enforcement of either $1,500 or twice the amount of the cost of workers comp premium for each employee during the uninsured time.
  • If one of your employees was injured or fell sick while you did not have workers comp coverage in place, you would also be responsible for their medical costs as well as legal fees that incur if your injured employee sues you, which he or she has the right to do.


Suffice to say that workers comp, while legally required, provides essential financial protection for you and your business should an employee of yours suffer an injury on the job. It is also worth avoiding the devastating claim, lawsuit, and state penalty fees that could all fall on your shoulders without workers comp coverage.


How is a Workers Comp Premium Determined?

Typically the premium on a California workers comp policy is calculated with the following formula:

(Annual Payroll) X (Classification Code) X (Experience Modification)

  • Annual payroll is what a workers comp premium is mainly based off of. For a workers comp quote, you would provide an estimate of your business’ payroll amount. Then an end-of-the-year audit will be performed by the carrier to collect true payroll information however it is best to provide as accurate of an estimate as possible during the quote process to avoid a potential large audit bill down the line.
  • Classifications codes (class codes) are codes with a specific rate related to a particular type of business as well as a job duty within your business and are applied to employees with similar risks. The rate assigned to each class code varies by state and is based on every $100 of payroll. For example, class code 8742 would apply to a business’ outside sales employees and its rate varies from state to state.
  • Experience modification rate (ex-mod) is a number that represents your business’ claim history, and the more claims in your history equates to a higher risk to insurance companies. Typically, if you have a clean claim history, your ex-mod will be below 100 which helps decrease your workers comp premium while, on the other side, if you have had several claims, your ex-mod will be above 100 and will increase your premium. If your ex-mod is high, implementing safety measures and programs in the workplace can help reduce the chance for potential workers comp claims.


What Workers Comp Plans are Available?

Workers comp policies generally are built on two billing plans: 1) an installment plan and 2) a monthly self-reporting plan (also known as a pay-as-you-go plan). 

Installment plans involve providing an estimated annual payroll figure in which the fixed premium is based on. You will have installment payments based off this premium amount every month.

Monthly self-reporting involves you reporting your actual payroll amount for that month which will generate your monthly premium that you can pay along the way instead of installments. This is also considered a Pay-As-You-Go program and is mostly preferred.

Both involve an end-of-the-year audit but monthly self-reporting is usually easier and more accurate during the auditing process.


How can you get started on a California Workers Comp Quote?

The best way to get started is by doing your research to find a knowledgeable commercial insurance broker who specializes in workers comp for your industry. You can provide brokers your business and payroll information and receive workers comp quotes to find the best rate. Although your best efforts to provide a safe and healthy working environment could help reduce the number of your workers comp claims, (and, as a result, your premium) accidents still happen so there is never a better time than now to starting finding the best workers comp insurance quote and policy plan for you and your business!