Home›For employers›What workers' comp costs

What workers' comp costs a California business

By Richard Vaughn CPCU, ARM, AIS. Reviewed November 8, 2026. Richard is an insurance professional, not an attorney. This page explains the law; it is not legal advice.

The formula

Workers' compensation premium in California is built the same way at every insurer: for each classification of work your employees do, payroll ÷ 100 × the rate for that class. Add the classes together, multiply by your experience modification if you have one, then apply the insurer's own adjustments. The result is the estimated annual premium, trued up by audit after the policy year.

Where the rate comes from

California does not set workers' comp rates. The Workers' Compensation Insurance Rating Bureau (WCIRB), a licensed rating organization funded by insurers, collects loss and payroll data by classification and develops pure premium rates for each class and submits them to the Insurance Commissioner (Insurance Code §11750.3, §11734). The Insurance Commissioner holds a hearing and adopts advisory rates. For policies incepting on or after September 1, 2026, the Commissioner adopted an average advisory pure premium rate of $1.65 per $100 of payroll, a 6.6% increase over the 2025 approved rate and less than the 10.4% increase the WCIRB had requested. The decision cited rising medical treatment and medical-legal costs, more projected cumulative trauma claims and higher claim-adjusting costs, partly offset by wage growth.

The pure premium rate covers only expected losses and the cost of adjusting them. Insurers then file their own rates with the Department of Insurance at least 30 days before using them, which add their expenses, taxes and profit (Insurance Code §11735); the Code requires only that rates be adequate to cover losses and expenses and not tend toward monopoly (Insurance Code §11732). The adopted figure is a benchmark, not a price.

Classification codes

Every job is assigned a four-digit classification code under the WCIRB's Standard Classification System, and each code carries its own rate because each has its own loss experience. Clerical work in an office and roofing at height are priced far apart. The governing classification is the one that describes the business as a whole; standard exceptions such as clerical office employees and outside sales are classified separately when the payroll records keep them separate. The classes the estimator covers:

Rates in this table are the advisory pure premium rates approved by the Insurance Commissioner, as published in the WCIRB's Classification Search, and carry the filing's effective date. They are refreshed when the next filing is approved; insurer rates for the same classes are higher.

The experience modification

If your premium is above the WCIRB's eligibility threshold, the Bureau computes an experience modification each year from your payroll and losses over a three-year experience period: the policies that began between four years nine months and one year nine months before the rating effective date, so the most recent, still-developing year is left out. Actual losses are compared with the losses expected for an employer of your size in your classes; the ratio, tempered for credibility, becomes a factor that multiplies the premium. Only the primary portion of each loss counts in full, the first $250 of every claim is excluded, and no single claim can raise the modification by more than 25 points, so several small claims typically raise a mod more than one large one. The mod follows the business, not the policy, and a change of insurer does not reset it.

Minimum premium, deposits and pay-as-you-go

Every policy has a minimum premium the insurer keeps even if payroll turns out to be zero. Traditional policies collect a deposit at inception and bill the balance in installments, with the final figure set at audit; the employer must give the insurer access to payroll records during the policy and for three years after (Insurance Code §11760.1). Pay-as-you-go billing reports payroll each pay period to the insurer, which charges premium as it goes; the rate is unchanged, the deposit is small or absent, and the audit adjustment is usually smaller because the payroll was reported as it happened.

What the premium buys

The policy pays every benefit the Labor Code requires for a covered injury: medical treatment, temporary and permanent disability, the supplemental job displacement voucher and death benefits (Labor Code §3700). The employer's exposure without it is covered on the penalties page: criminal liability, stop orders and a penalty assessment, plus a civil suit by the injured worker with the usual defenses removed.

Questions people ask

Richard Vaughn CPCU, ARM, AIS

Richard Vaughn spent 35 years in commercial property and casualty insurance, most of it in workers' compensation: running a self-insured group, auditing premiums, and implementing claims systems for carriers and third-party administrators. He is not an attorney. dickvaughn.com