How does workers' comp work in California?

California is currently the 3rd most expensive state in the country for employers' workers compensation coverage. California rates have continued to rise over the past 10 years. Much of the increased costs are caused by the rising costs of medical coverage and state laws. Rates have been declining over the past few years.

State law requires that all employers provide workers compensation coverage to any employee of the company. It is illegal for any employer to pay a medical bill directly to the provider. A claim form (DWC Form 1) must be filed with the insurance company for any injury requiring more than first aid care.

Failure to purchase workers' comp coverage is a criminal offense in California. Employers may receive a fine of $10,000 or more and up to a year in a county jail.

Workers' Comp Rules & Information for California

California Governor Signs Order to Address Insurance Issues

On Sept 21, 2023, Governor Newsom signed an exectuitve order asking for swift regulatory actions to address California's failing P&C insurance market. The executive order is seeking to expand coverage optionns for all State residents, maintain the solvency of the FAIR Plan, accelerate changes by getting the CA Department of Finance to support CDI wihin the rulemaking process and, finally, to improve the insurance rate approval process. Some standard market insurance carriers have left the state in recent years because of how slow and difficult its been to file and establish new insurance rates with the state of California.

Who Needs Workers Comp in California?

In CA, it is mandatory that all employers carry workers compensation insurance regardless of whether they have only one employee. Sole proprietors are not required to have workers compensation unless they are roofers. Roofers are specifically required to have this insurance. Aliens, minors and incarcerated people are included under the law and are deemed to be employees.

Does CA Allow Workers’ Comp Exemptions for Business Owners?

A business entity established in California are included unless they elect or choose to be excluded. Who can choose to be excluded?

  • Officers and members of boards of director of corporation
  • Owners of a professional corporation
  • General partners
  • Managing members of a limited liability corporation

Corporate officers who can be excluded need to familiarize themselves with the California Labor Code Section 3351 and 3352 to be sure that they qualify in regard to percentage of ownership, family relationship to governing members, and provisions relating to trusts. Your agent can assist you but cannot give you any legal advice. If there is a question in regard to whether you qualify for the exclusion you should consult an attorney. Each person seeking to exclude themselves is required to complete an election in the form of an affidavit and file it with the state through WCRIB Some carriers will file the exclusion for you but ultimately the business owner is responsible.

In California, business are required to report any change in ownership directly to WCRIB by using the online procedure found in WCRIB Connect Ownership Information Submission tool. The change must be reported regardless of whether it is nonmaterial. The ownership percentage impacts the experience modification rate unless it is considered to be a nonmaterial change.

The minimum payroll used to calculate the cost of workers comp for included owners is $54,600 and a maximum of 139,200.However, 10% of their payroll should be designated under clerical class code 8810.

In California, owners who want to change from the default exemption rules must be listed on the signed Acord 130 application sent to the insurance company so it can be filed.

What are the Penalties for not Having Workers Comp in CA?

Workers compensation related penalties are pretty strict in Califiornia. Failure to carry coverage is a misdemeanor which is punishable by up to 1 year in the county jail and/or a fine of not less than $10,000.00. A second failure includes 1 year in the county jail and a fine up to $50,000.

When Do I Get an EMR Rating in CA?

All California businesses start without an experience modification rate. Their effective EMR Rating is 1.00, which is neutral because it does not increase or decrease premium and makes no adjustment to an insurance carriers' workers comp rates. Once a business qualifies, NCCI will mail the new Experience MOD Worksheet each year prior to the renewal date. In CA an annual policy must cost more than $ 9700 or cost more than $4850 for two consecutive years to qualify for experience rating.

Learn more about Experience Modification Rates.

How Long do You Have to Report an Injury at Work in California?

Employers are required to notify their insurance company as soon as practical after a work-related injury. As of Jan 2, 2017, California employers are required to report all claims including first aid and small medical only claims through Sedgewick/ WCRIB. The Employees have 30 days to notify the business of a claim without losing any benefits. Every Physician treating an injured employee must send copies of the Doctors First Report of Occupation Illness or Injury within 5 days of the exam. If an employer refuses to file a claim with the carrier, then the employee can file the claim with the Division of Workers Compensation or obtain an attorney. California requires that a worker has to file a claim within 1 year of the date of the accident.

How Long can an Employee Remain on Workers' Comp After a Claim?

The general rule is that an injured workers can draw unemployment for up to 300 weeks while on temporary total disability or until they reach Medical Maximum Improvement.

California Regulatory Authority

Workers Compensation Rating Bureau of California
525 Market Street, Ste. 800
San Francisco, CA 94105-2716

California State Fund and Assigned Risk Policies

Employers can choose to buy coverage from a private insurance carrier or they can choose to get coverage from SCIF (State Compensation Insurance Fund). The state does not require that coverage was declined by a private insurance company in order to submit for underwriting. While the California State Fund can be competitive with the private markets, businesses are advised to seek quotes from three or more insurance carriers in order to ensure fair market pricing.

State Fund Announces 2016 Decrease in Fund Rates (June 2016)

The California Department of insurance has approved the new rate filing proposed by the California State Fund. Effective September 1st, 2016, California policyholders will see an overall reduction in rates of 9.5%. This is good news for most policyholders since rates had been on the incline for several years prior.

Early 2016 Rates Continue to Escalate for California Employers

The most recent premium comparison indicate that California state moved from the third highest rates in the U.S. to the number one spot. Rates are estimated to be approximately 188% higher than the study median rates.

California Short Rate Cancellations (Effective January 2012)

Recent changes to California insurance codes now require that all insurance companies provide written disclosure of their short rate fee calculation to all CA employers. Many carriers are working to add these disclosure statements to their current quote systems. The disclosure should be provided in writing for workers compensation quotes involving:

• New Policies- prior to the acceptance of the quote.

• Renewal Policies- as part of the renewal quote and prior to the renewal effective date.

California Classification Codes

California administers its own workers compensation program aside from the NCCI (National Council on Compensation Insurance). While California utilizes many of the same 4-digit classification codes as NCCI, they have multiple state special and state exception codes to the standard NCCI Scopes Manual. Employers should be cautious when trying to attempt self-classification without an experienced agency such as Workers Compensation

State Fund Information in CA

California is a No Fault workers' comp system. The State Fund was created by the legislature in 1914 in order to guarantee insurance access for California employers. The State Fund is designed to be a non-profit public enterprise under state statute. The organization is self-supporting and generate revenue from insurance premiums and investment income. The Fund insures approximately 130,000 state businesses.

State Insurance Directives Regarding Covid-19

All insurance companies provide their insureds with at least a 60-day grace period to pay insurance premiums so that insurance policies are not cancelled for nonpayment of premium due to circumstances beyond their control (Summary: Insurance Commissioner is “requesting” that all insurance companies provide their insureds with at least a 60-day grace period to pay insurance premiums so that insurance policies are not cancelled for nonpayment of premium during this challenging time due to circumstances beyond the control of the insured.)

Discretionary order in effect from 03/18/2020 - further notice. Applies to all insurance companies.

Additional Orders Regarding Insurance Related to Coronavirus

Insurers are ordered to make an initial premium refund for the months of March and April to all adversely impacted CA policyholders as quickly as practicable, but by no later than August 11, 2020. This applies to lines of business that are deemed to have measured risks that are overstated as a result of the pandemic, e.g., commercial auto, workers’ compensation, commercial multi peril, and commercial liability. Insurers are permitted to determine the best method premium – premium credit, reduction, return, etc. If consistent with current rating plan, Insurers may reclassify exposures to comport with current exposures or reduce exposure base (e.g., miles drive, payroll, receipts, etc.) to reflect actual or anticipated exposure without obtaining prior approval. Insurers may refund premium without prior approval if they apply a uniform premium reduction for all policyholders in an individual LOB for recent, current, and upcoming policy periods. The amount of across-the-board premium refund may be an average percentage based on estimated change in risk and/or reduction of exposure bases. Alternatively, Insurers may refund premium without prior approval by reassessing the classification and exposure bases of affected risks on a case-by-case basis for recent, current, and upcoming policy periods. Where there are risk misclassifications resulting in overcharges, insurers should immediately reclassify risks and refund premium. By August 11, 2020, insurers must provide affected policyholders a notice that includes: 1) the amount of the refund; 2) an explanation of the basis for the adjustment, including a description of the policy period that was the basis of the refund and any changes to the classification or exposure basis; and 3) an invitation for the policyholder to provide their individual actual or estimated experience (for auto policies, this would include an invitation to provide updated mileage estimates). Within 60 days, insurers must report actions taken or contemplated in connection to this bulletin (for more info about this request, see the “Regulatory Requests” tab).

Effective 04/13/2020 - 08/11/2020 unless extended.

Specialized Programs for Select Industries

We work with our national insurance partners to develop targeted programs with easier underwriting requirements and lower rates. We offer a broad range of business class codes that help streamline the quote process so you get the lowest price for coverage.

Knowing the California workers comp requirements can help lower the cost of coverage.

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CA Posting Requirements

California employers are required to post the Notice to Employees poster in an obvious place at the worksite. This poster provides information to employees about your insurance company and where to go to seek medical treatment.

Failure to post the notice may result in a fine up to $7,000 per violation.

California Notice to Employees

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Workers' Comp Includes Employers Liability Insurance?

Employers liability insurance is an additional layer of coverage included as part of a workers' compensation insurance policy. Employers Liability is known as Part 2 of the policy. It adds two additional coverages for employers:

Employers Legal Liability and Legal Defense Costs

In today's world, there are a variety of reasons employees and third-parties sue employers for damages. Here a some common types covered by employers liability insurance:

Third Party Lawsuits

Your employee sues another party that may have contributed to the injury, In turn, the third party sues your business.

Consequential Bodily Injury

Another party or individual is injured while providing care for the injured employee.

Dual Capacity Legal Action

An employee files a claim but also attempts to sue the employer for being responsible in other ways outside of the employment relationship.

Loss of Consortium

A spouse sues for damages caused by the loss of companionship or relations.

Employers Liability coverage is not included with coverage in the four monopolistic states. Employers in these states can endorse this coverage onto their General Liability policy. That coverage is commonly known as Stop Gap Coverage.

Workers' Comp Covers CA Employers from Injury Related Expenses & Lawsuits
Employers liability insurance is included under a workers' comp policy in most states.
  • Employers liability coverage is not included in all monopolistic states.
  • All NCCI and most other states' coverage includes employers liability insurance.
Visit NCCI for more resources and information about workers' compensation class codes. Visit United States Department of Labor for more information about government agencies managing workers compensation insurance rates.

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