While a predetermined formula sets workers’ compensation insurance premiums, employers often dispute the amounts of the premiums they are asked to pay and it’s no surprise as to why: Insurance premiums are one of the many challenging costs for California employers. In fact, according to a 2014 report, California is the most expensive state for workers’ compensation costs.
For more than 100 years, state law has required that all California employers carry workers’ compensation insurance, which provides benefits and compensation to employees who are injured on the job, as well as protections to employers whose workers are injured at work. A premium, or the amount an employer pays to an insurance company, depends on the employer’s industry “classification code” and the employer’s “payroll”.
How is the WCIRB Classification Code Set?
The classification code is set by the Workers’ Compensation Insurance Rating Bureau based on the type of work the employer does. The appropriate classification best describes the business of the employer, so the overall business is classified, not each employee or duty. For instance, an employer in the business of roofing will likely have a higher premium than a firm that does accounting or other office work. What’s more, the roofing company may have to pay higher premiums for all employees, even for the administrative staff who never go out to dangerous job sites.
How is Cost Determined?
Another factor included in the costs of premiums is the employer’s location. Employers located in large cities potentially face an increased risk of terrorist attacks, and therefore employers located in metropolitan areas—regardless of the type of industry—typically face higher premiums.
The term “payroll” refers to the size of the employer’s payroll. For every $100 an employer spends in payroll, there is a corresponding rate based on the classification codes. Certain costs are included as payroll, such as gross wages, salaries, commissions, bonuses, vacation, holiday, and sick pay, overtime, and the market value of gifts, among others. Other costs, such as meals or lodging, tips, severance pay, and stock options are not included as payroll.
Additional factors are considered for premium calculations. For example, employers who pay a certain amount in an annual premium may qualify for an “experience rating,” which adjusts the premium up or down depending on the claims history. If a business has a higher-than-average number of claims compared to other businesses in that industry, that business may pay a higher premium. The number of claims is more important than the dollar value of the claims. More accidents means the workplace is not as safe as it could be and the insurance company will need to pay for many claims in the future.
If you have a question related to your workers comp insurance premiums, contact experienced insurance lawyer Drew E. Pomerance today.
