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According to the California labor law, all business owners must purchase workers’ compensation for their employees. Workers’ comp premiums are calculated according to the employees’ job classification, the size of the employer’s payroll, and the company’s claims experience.

In general, the higher the total salary paid by the employer, the higher the premium. The type of work also affects the premiums. Premiums for porters, truck drivers, etc., can go up to 10 times the amount for general staff. As a result, there will be employers who will want to underreport their staff salaries to save money on their workers’ comp premiums.

In one case in 2016, two business owners who ran a trucking company in Long Beach, California, were arrested at their home in late April for workers’ compensation insurance premium fraud for allegedly cheating their workers’ compensation insurer, facing a 36-year prison sentence if convicted. According to the California Department of Insurance, from 2009 to 2013, these two business owners, the Chen’s, falsely reported the number of their employees, underreporting more than $4.7 million of staff salaries. They allegedly cheated their insurer more than $1.6 million in workers’ compensation premiums.

In reality, lies, frauds, and other ways to save on workers’ comp premiums is pretty difficult. When employers apply for workers’ comp insurance, they estimate the premium for the total salary to report in the upcoming year and they would pay the total premium in one installment. When the insurance expires, the insurance company will check the employer’s history and the total salary issued, calculating the actual premiums.

KCAL Insurance Agency would like to emphasize that if there are disputes with the payroll, then employers can talk to an insurance broker to help with the appeal. DO NOT put the employees in harm’s way to avoid your own responsibilities.

If employers really want to save money on workers’ comp premiums, then they should focus on maintaining a safe working environment for employees so that they can reduce the number of claims the company makes, which can help them avoid increases in premiums. It’s also helpful to remember that every year, three months before your renewal, you can look into various companies to compare costs to see if other companies offer better prices. (Contact us now to find out if you can save even more.)

Furthermore, for certain larger and higher risk companies, one important factor is used to calculate your workers’ comp premiums—this is known as Experience Modification, also known as Ex-Mod. Your company’s Ex-Mod is calculated by the WCIRB (Worker’ Compensation Insurance Rating Bureau) and it determines the premium you would pay for your policy. It rates employers against others in the same industry based on the employer’s historical claim experience. If your Ex-Mod rate is lower than 100%, the cost of your workers’ compensation premium would decrease. If your Ex-Mod rate is higher than 100%, then your premium would increase. You can be subjected to a Cal/OSHA inspection and a fine if your Ex-Mod rate is 1.25 (125%) or higher.

KCAL Insurance Agency has over 30 years of insurance experience and handles thousands of businesses in Southern California. We provide comprehensive workers’ compensation and commercial insurance plans, as well as risk prevention strategies, carrying a wide range of products to meet the various needs of different industries. As a KCAL client, you will also be able to receive free legal consultation provided by professional business and labor law attorneys, helping you reduce and clear any potential labor law lawsuits.

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