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Overview of California Workers' Compensation

What is workers' compensation insurance and what is its purpose?

A workers' compensation insurance policy provides covered employees with medical and wage replacement (indemnity) benefits that arise from workplace injuries. Only workplace injuries that arise from the normal course of business are compensable.

Generally, all businesses in California that have employees must purchase a workers' compensation insurance policy from a private insurance company or the State Compensation Insurance Fund.

Some large businesses are self-insured and do not purchase insurance policies from an insurance company.

For information concerning self insurance, see the Department of Industrial Relations, Office of Self-Insured Plans at http://sip.dir.ca.gov.

Who must have a workers' compensation insurance policy?

Generally, all California businesses that have employees must purchase a workers' compensation insurance policy or be legally self-insured.

The WCIRB does not determine who is required to purchase a workers' compensation insurance policy nor does the WCIRB determine whether or not a person is an employee or an independent contractor.

For more information, visit the Department of Industrial Relations Division of Workers' Compensation website at http://www.dir.ca.gov/dwc/

What is covered by a policy?

A workers' compensation insurance policy covers the costs of medical treatment including physician visits, prescription medications, surgeries, etc. In addition, workers' compensation insurance provides lost time or indemnity benefits. The amount of indemnity benefits is based upon a workers' weekly wage and the benefit amounts are determined by California laws.

Standard Classification System

The primary purpose of the classification system is to facilitate the accurate collection of data so that the cost of workers' compensation insurance can be distributed as equitably as possible. To do that, the classification system is designed to divide payroll data into groups in order to match the premium that you pay to the average potential risk of injury.

All California businesses are classified using the Standard Classification System found in Part 3 of the California Workers' Compensation Uniform Statistical Reporting Plan - 1995 (Uniform Statistical Reporting Plan). The Uniform Statistical Reporting Plan is part of the California Code of Regulations and is approved by the Insurance Commissioner. The Standard Classification System, which contains approximately 500 industry classifications, describes groups of employers whose businesses are relatively similar. Each classification reflects the type of operations common to that group of employers. A pure premium rate, expressed as a rate per $100 in payroll, is calculated by the WCIRB for each classification. The pure premium rate is based upon loss and payroll data submitted to the WCIRB by all insurance companies, and it reflects the amount of losses an insurer can expect to pay in benefits due to workplace injuries.

Classification Examples

Classification Code	Classification Description	Pure Premium Rates* (Jan. 2010)
2116	Fruit Juice Mfg.	$4.89
2117	Vegetable or Fruit Processing - frozen	$7.40
2121	Breweries or Malt Houses	$3.16

* Pure premium rates are amended at least annually. For the current pure premium rate, see Appendix I, Pure Premium Rates, of the Uniform Statistical Reporting Plan.

For most industries, classifications are assigned by analyzing an employer's overall California operations and identifying one classification that describes the business as a whole. This approach is based on the premise that, in general, employers within a specific industry operate in a similar manner and engage in comparable processes. The resulting classification rate reflects the average anticipated cost of medical and indemnity benefits, per every $100 of payroll, incurred by businesses within the particular industry. This approach is relatively easy for employers to administer, in that most employers use only one classification. Consequently, a one-classification system promotes the gathering of accurate payroll and loss data and enables the WCIRB and insurers to develop rates specific to a particular industry. Some industries have their own special classification procedures.