Workers’ Compensation Insurance: Costs and Penalties

If you have a small business, partnership, or sole proprietorship, or if you’re self-employed in California, you may have questions about workers’ compensation insurance. Naturally, many business owners are concerned about the cost of this insurance and the possible penalties for not being insured.

Although you will have to pay premiums to retain your CA workers’ comp insurance, those costs pale in comparison to what you could encounter if you are caught uninsured and one of your employees becomes injured at work.

California requires businesses that retain employees to purchase workers’ comp insurance. If you operate without it, you can face steep financial penalties. It is even considered a criminal offense that can result in jail time.

Furthermore, without insurance, you could be held liable for an injured employee’s medical bills, as well as their lost wages and other costs. Like any insurance policy, California workers’ compensation insurance protects you from liability and general risk to your business.

Nonetheless, there are specific costs and penalties you should pay attention to so you can fit your workers’ comp insurance bill into your budget.

How Much Does an Employer Have to Pay for Workers’ Comp?

Workers’ compensation insurance policies differ in terms of coverage, and not all states require the same types of coverage. Typically, if you have workers’ comp insurance, it will pay for the following:

• Medical costs to treat immediate injuries and illnesses
• ER visits
• Lost wages
• Ongoing care
• Funeral costs
• Death benefits
• Legal costs if an employee sues you (in some cases)

California employers do have the option to pay out of pocket for an employee’s workers’ compensation claims. Specifically, they can do so in the instance where only first-aid is necessary to treat an injury. This minimizes the impact of a claim on your insurance premiums and other modifications.

However, keep in mind that some injuries can become worse over time. Even something small like a cut could become infected, leading to much costlier medical bills. It’s also possible that an employee will sue you later for a workplace injury, even if you paid their medical costs.

How Much Does Workers’ Comp Insurance Cost for a Small Business?

The cost of workers’ compensation is determined by the Workers’ Compensation Board in each state. In California, the Division of Workers’ Compensation monitors the administration of workers’ comp claims and assists in resolving disputes.

However, the process for calculating the cost of workers’ compensation insurance is mostly similar in each state.

The state classifies each occupation based on its level of risk. Risk is determined by the frequency of on-the-job injuries in the occupation as well as the severity of injuries sustained in the occupation. Severity is measured based on medical payments and payments made directly to employees.

For example, a roofer will have a higher risk classification than an office worker. They work at high heights, outside, and with power tools, whereas the office worker is relatively safe indoors during most of their workday.

In fact, roofers have the highest occupational risk classification in California. This means the costs of workers’ compensation insurance would be higher for a roofing company than it would be for other types of companies.

Each occupational risk classification is translated into a dollar amount which is multiplied by 1% per $100 of the total payroll for an employee.

Let’s say a risk classification translates to a dollar amount of $125. Multiplied by 1%, an employee with his classification would cost $1.25 per $100 paid to insure.

if an employee is paid $500 per week in workers’ compensation and the risk classification for that worker translates to $1.25 per $100, the insurance premium the employer pays is roughly $6.25 per week or $25 per month for that employee.

These rates can fluctuate based on your company’s safety history and whether you offer health insurance to your employees. If you maintain a safe and healthy work environment, you could pay lower rates.