As a small business owner or HR professional in California, it’s critical to understand the ins and outs of the state’s workers’ compensation system. This knowledge helps you choose the right class code for every employee. And when you do that — along with knowledge of your payroll — you can estimate your cost of coverage.
California has some of the highest workers’ compensation rates in the country, and with that, you’re sure to have questions such as:
- What are workers’ compensation rates in California?
- Why are rates in California so much higher than many other states?
- Are rates increasing or decreasing?
- What steps can you take as a small business owner to maximize savings?
As you answer these questions, you’ll become more familiar with California workers’ compensation rates and the impact on your company.
California workers’ compensation rates vs. other states
Workers’ compensation rates vary from state to state, as it’s not governed at the federal level. California currently has the fourth highest work comp rates in the U.S. at an index rate of $2.16. It only trails these states:
- New Jersey: $2.52
- New York: $2.23
- Vermont: $2.21
Within each state, each industry (or classification code) is assigned its own rate. Premium index rate is a kind of weighted average intended to compare benchmark workers' compensation rates by state.
A variety of factors dictate rates from state to state. Examples include:
- The overall cost of living in the state.
- The cost of medical care in the state.
- How “business friendly” the state is.
- The number of statewide claims filed the previous year (more claims can result in higher rates).
- The industry make-up of the state (high-risk vs. low-risk businesses).
In California, the cost of living and cost of medical care is much higher than most states. Add this to a worker-friendly political climate, and it’s a recipe for above-average workers’ compensation rates.
Later in 2022, it looks like California workers' comp rates may increase modestly — a result of claims filed in 2021 and the projected cost of COVID-19 claims.
How much will you pay for workers’ compensation?
Workers’ compensation is required for all employees in California. So, no matter how many people are on your payroll — from 1 to 100 to 1,000+ — it’s your job to ensure that they have the proper coverage.
The amount you pay in workers’ compensation premiums depends on the following:
- Payroll: It’s payroll, not employee count, that factors into premiums.
- Claims history: Past workers’ compensation claims will affect future premiums. The number of claims and amount all come into play.
- Classification codes: Every employee is assigned a classification code based on job responsibilities. The greater the risk associated with the job, the more you’ll pay for coverage. For instance, a roofer takes on more on the job risk than a secretary.
For tips on how to manage your workers' compensation premium, see our post: How to Get Cheap Workers’ Compensation Insurance in California
Why payroll matters
Since your company’s workers’ compensation cost is based on payroll, not employee count, it’s important to get payroll right. It plays a huge role in workers’ comp insurance costs, and it’s the biggest factor (outside of workplace safety) that an employer controls.
Don’t worry; we break it down in this post:
Over- or under-estimate payroll? That’s okay; your insurer will correct it during the annual audit. But the more accurate your payroll reporting is, the more likely you’ll be able to:
- Prevent a large bill at the end of the policy term to pay for underreported payroll numbers.
- Avoid tying up cash flow throughout the year — a result of over-paying for your policy.
Buying workers' comp coverage in California
If you’re in the market for California workers’ compensation insurance, the information above will help you decide what to do next.
Should you require any help calculating your workers’ compensation cost, use our online quoting tool to get started. Within minutes, you’ll receive a quote based on company-specific data. And if you like what you see, you can begin the purchase process.