Workers Compensation – What Determines My Premium?

In California, nearly all employers – even those who have only one employee – must provide workers’ comp insurance. However, there could be exceptions for farm workers or family members. While such insurance is often viewed as being a vehicle that protects and serves the employee, having this insurance also prevents the employer from being sued if a worker is injured during the course of their job duties. This helps to protect the long term health of the business. Employers in California are responsible for paying the full cost of the premium for workers’ comp insurance.

Although the factors that determine the premium that must be paid are variable, there are three primary ones: the business classification code, the business’ safety record and its experience modification.

• The business classification code is a code or a combination of codes that describes your business operations. Restaurants, for example, have different risks than construction companies and hair salons, though they do share some of the same issues as well. The higher the risk for injury to employees while on the job, generally the higher the premium the employer faces.
• A business’s safety record that reflects compliance with industry standard safety practices involving equipment and procedures will reflect favorably on its premium. Conversely, a poor safety record or a company that is out of compliance with OSHA regulations will likely face higher premiums until the issues are addressed for several billing cycles.
• The experience modification involves the number of claims against the workers’ comp insurance. The fewer the claims against this
  insurance, the lower the premiums will drop over time while more claims will increase the cost of workers’ comp.

Other factors that are often used to determine the cost of an employer’s workers’ comp insurance. These include special dividend or group programs the business might be eligible for as well as underwriting adjustments that are out of the ordinary such as using a health care organization that is certified.