Workers’ compensation is more than just a benefit; it’s a requirement. In California, all organizations must provide workers’ compensation insurance for employees if the business has more than one employee. With it, employers and employees can rest assured knowing they’ll have financial protection when an injury occurs at a workplace or worksite.
In California, all businesses must cover the workers’ compensation premium, according to the California Department of Industrial Relations. As a result, many business owners worry about the cost of these premiums. While these premiums save you from paying a hefty medical bill, they can become costly, as the cost can vary depending on various factors. Let’s evaluate these factors and what you might expect to pay as a business owner.
Why Is Workers’ Comp Insurance Required in California?
As mentioned, not only does workers’ comp insurance protect you and your employees from being financially responsible for paying for medical bills for a workplace injury and lost wages, but it’s also a requirement in California. Legislators passed this law as a way to protect employee rights. If you fail to do so, you could be liable for a civil lawsuit and a criminal charge, according to the state’s Department of Industrial Relations. If employees find their employer refusing workers’ compensation insurance, they can contact an employment lawyer or file a claim with the state.
Factors That Influence Workers’ Comp Insurance Costs in California
No matter where you are, workers’ compensation insurance premium costs can vary on a variety of factors, including:
Industry Type
The type of industry your business operates in is one of the most significant factors influencing workers’ comp insurance premiums in California. High-risk industries like construction and manufacturing will likely have more workplace injuries and illnesses, necessitating more compensation claims. Conversely, low-risk industries like office-based businesses or retail often see significantly lower rates.
In addition, specific job roles may have more risk than others. For example, since electrical lineworkers inherently conduct more risk in their daily responsibilities, they will have a class code that quantifies the risk they handle. On the other hand, an administrative role at the same company may have a class code that quantifies less risk.
Payroll Size
Your business’s payroll size determines your workers’ comp insurance premiums. In California, providers calculate premiums as a percentage of your payroll. This means that businesses with larger payrolls will pay higher overall costs, even if the rate per employee remains the same.
For example, your business operates in a relatively low-risk industry, and your workers’ comp insurance rate is $1 per $100 of payroll. If your annual payroll is $500,000, your workers’ comp premium would be $5,000 for the year. However, if your payroll is $1 million, the premium would double to $10,000.
This structure ensures that businesses contribute proportionately to the workers’ comp system based on the number of employees and their wages.
Safety Record
Workers’ comp providers will establish a premium while looking at your business’s previous history and how prone your business has been to risk like any other type of insurance provider. They call this an experience modification rate (EMR). You will likely receive a higher premium if your EMR exceeds 1.0, the industry standard. If your EMR is lower, you will receive a discount on your premium. In addition, if you follow HIPAA guidelines to avoid future injuries, you will likely have a lower premium.
Provider-Specific Rates
Each insurance carrier evaluates risk using its underwriting criteria, which can result in different premium quotes for the same business. For example, one carrier might weigh your business’s safety record more heavily, offering a lower rate if you have minimal claims. Another carrier might prioritize industry-specific risks, leading to higher premiums if you operate in a high-risk sector like construction or manufacturing. These variations occur because providers assess risk differently, relying on their proprietary formulas and historical data to set rates.
How Much Does Workers’ Comp Insurance Cost in California?
California is one state with an independent bureau to regulate the cost of insurance, known as the California Department of Insurance, which the California Insurance Commissioner spearheads. As of September 2024, the California Commissioner mandated the minimum workers’ compensation insurance premium rate to be $1.38 per $100 of payroll to match California’s growing economy. You may find a different rate depending on the abovementioned factors. For example, Insureon, one workers’ compensation insurance provider, found that small business owners pay, on average, $45 per month per employee. Other providers may quote you more or less depending on their underwriting process, your business’s history and size, and the industry itself.
One comprehensive California Department of Insurance report found that the average manual rate for workers’ compensation insurance was $11.41. This report also stated that these rates are not official quotes, and your quote will likely differ based on several factors mentioned above.
To find out what you might expect to pay, you can use the following calculation:
- Premium = (payroll/$100) x class code rate x EMR
Often, providers send this class code rate beforehand so you can better understand their quoting process.
How to Lower Your Workers’ Comp Premiums in California
Because there are so many factors that can influence the cost of your workers’ compensation insurance premium, there are plenty of strategies you can utilize to find the best rate possible:
Invest in Workplace Safety Programs
By prioritizing employee safety and minimizing workplace hazards, businesses can significantly lower the risk of injuries and claims, improving their EMR rate and premium. The best way to do this is by establishing a comprehensive safety program. You can always hire an external investigator or expert to provide recommendations, but most will establish essentials you will need, such as:
- Regular safety training;
- Routine equipment inspections;
- Clear protocols for hazardous tasks,
- Ongoing communication about workplace risks.
These steps will help you create a safer workplace and ensure that all employees know how to prioritize their health and well-being.
Work with an Experienced Broker
The insurance provider and broker you work with can significantly affect the premiums you pay as a business. Brokers have in-depth knowledge of the insurance market and can help you navigate the complexities of workers’ compensation policies. By leveraging their expertise, brokers can identify potential discounts and negotiate the most competitive rates tailored to your business needs.
For example, a broker may have pre-established relationships with multiple providers, which can help negotiate favorable terms for you. This same expertise also allows them to inform you of hacks like using industry-specific discounts, safety program initiatives you can do to lower your rate, and group purchasing options.
Manage Claims Effectively
How your business handles claims can significantly impact your workers’ comp insurance costs, as insurers closely monitor your claims history when setting premiums. By following these steps when filing a claim, you can minimize the financial impact of claims on your policy:
- Report incidents quickly: Prompt reporting ensures injured employees receive the care they need immediately, reducing the likelihood of complications or disputes that can drive up costs.
- Complete thorough documentation: Recording the details of the incident, including witness statements, photos, and medical reports, helps protect your business from fraudulent claims and provides a clear foundation for resolving legitimate ones.
- Maintain open communication: Staying in touch with the injured employee throughout the claims process can foster trust and reduce the risk of prolonged or contested claims.
- Implement a return-to-work program. This will indicate to insurers that you will help employees transition back to work safely, reducing their risk of needing to file further workers’ compensation claims.
Workers’ compensation insurance may seem like a hassle, but it benefits everyone — from the employee and employer to the provider. As long as businesses budget for it and evaluate each plan’s coverage, they can provide a safe environment for everyone to work in. If you are an employer or an employee and have questions regarding workers’ compensation insurance and your rights, contact Request Legal Help! We’ll answer any questions you have to maintain safety for everyone. ,
FAQs About Workers’ Comp Insurance in California
How Is Workers’ Comp Insurance Cost Calculated in California?
Providers calculate workers’ comp premiums as a percentage of the employer’s payroll, adjusted for the industry’s risk and the company’s safety record. Higher-risk industries or businesses with a history of claims typically pay more.
Can Employers Reduce Their Workers’ Comp Insurance Costs?
Employers can reduce costs by investing in workplace safety programs, maintaining a good safety record, managing claims effectively, and working with a knowledgeable insurance broker to find competitive rates.
What Is the Average Cost of Workers’ Comp Insurance for Small Businesses in California?
The average cost for small businesses varies depending on factors like industry type and payroll. Generally, small businesses in low-risk industries might pay less, while those in high-risk sectors, such as construction, may pay higher premiums.
Do Workers’ Comp Insurance Rates Vary Among Providers in California?
Yes, rates can vary significantly among insurance providers, as each one may evaluate risk factors differently. We recommend comparing quotes from multiple providers to find a rate that suits your budget while providing the coverage you need for workers’ compensation benefits.
What Are the Penalties for Not Having Workers’ Comp Insurance in California?
In California, failing to have workers’ comp insurance can lead to severe penalties, including fines, stop-work orders, and potential liability for covering employee injury costs out-of-pocket.
How Often Do Workers’ Comp Premiums Need to Be Paid?
Workers’ comp premiums are usually paid annually or in installments, depending on the agreement with the insurance provider. The frequency of payments can vary, so it’s best to confirm with your provider.
Can Businesses Get a Workers’ Comp Insurance Discount in California?
Some providers offer discounts for businesses with solid safety programs or a good claims history. Employers who utilize specific safety programs that can help their businesses avoid future accidents may receive lower premiums.
About the Author
Aaron is a professional legal writer with a B.S. in English Education from Southern Illinois University – Carbondale. He has written, published, and edited thousands of legal articles for RequestLegalHelp, which has connected over 5 million people to legal help in the United States.
With over five years of experience writing thousands of legal articles for law firms across the U.S. and Canada, Aaron specializes in covering federal, state, and city-level legal issues ranging from auto accidents to wrongful terminations.
