Every employer in California with at least one employee is required by law to carry workers' compensation insurance. No exceptions. No small-business exemption. No grace period for new hires.
Workers' comp is a no-fault insurance system: when an employee is injured on the job or develops a work-related illness, workers' comp pays for their medical care and lost wages — regardless of who was at fault. In exchange, the injured worker generally cannot sue the employer directly. The system protects both sides.
For most small business owners in the Bay Area, workers' comp sits somewhere between “I know I need it” and “I’m not sure exactly what it covers or what I’m paying for.” This guide covers the essentials, including one option — pay-as-you-go workers' comp through our SurePayroll platform — that significantly reduces the administrative headache.
- Required for: All California employers with 1 or more employees
- Enforcing agency: California Department of Industrial Relations (DIR)
- Penalty for no coverage: $1,500 per uninsured employee per pay period, plus potential criminal charges
- Premium basis: Payroll × classification code rate × experience modifier
- Official source: California DIR: dir.ca.gov
What Workers' Compensation Covers
California workers' comp provides five types of benefits to injured or ill workers:
- Medical treatment — all reasonable and necessary medical care for the work-related injury or illness, with no dollar cap
- Temporary disability (TD) — approximately two-thirds of the worker's pre-injury weekly wages while they recover and cannot work (subject to state minimum and maximum amounts)
- Permanent disability (PD) — compensation if the injury results in a lasting impairment that affects the worker's earning capacity
- Supplemental Job Displacement Benefit (SJDB) — a voucher for job retraining or skill enhancement if the worker cannot return to their pre-injury position
- Death benefits — payments to qualifying dependents if a worker dies as a result of a work-related injury or illness
The employer pays workers' comp insurance premiums. The insurance carrier pays the benefits directly to the injured worker. As long as you maintain coverage, you as the employer are generally shielded from direct lawsuits by injured employees.
How Workers' Comp Premiums Are Calculated
Your workers' comp premium is based on three factors multiplied together:
Payroll × Classification Rate × Experience Modifier
Payroll: The amount of wages you pay, typically expressed per $100 of payroll. A larger payroll means a larger premium.
Classification code rate: Every job type is assigned a four-digit classification code by the Workers' Compensation Insurance Rating Bureau of California (WCIRB). The code reflects the inherent risk of that work. Office employees might carry a rate of $0.20 per $100 of payroll; roofing contractors might pay $20 or more per $100. The rate is set by the insurer, guided by WCIRB filings.
Experience modification factor (X-Mod): After three years in business, your claims history is compared to other businesses in the same classification. If your claims are lower than average, your X-Mod drops below 1.0 — meaning a premium discount. If your claims run higher than average, your X-Mod rises above 1.0, increasing your premium. A strong safety culture directly reduces what you pay.
- Annual payroll: $300,000
- Classification code rate: $2.10 per $100 of payroll
- Experience modifier: 0.90 (below average claims, 10% discount)
- Annual premium: $300,000 ÷ 100 × $2.10 × 0.90 = $5,670
Pay-As-You-Go Workers' Comp: How It Works
Traditionally, workers' comp worked like this: you pay a large deposit (often 10–25% of estimated annual premium) at the start of the policy, make monthly installments based on estimated payroll throughout the year, and then face a year-end audit where your actual payroll is reconciled against the estimate. If you underestimated, you owe more. If you overestimated, you wait for a refund.
This creates three problems for small businesses: a large upfront cash outlay at policy start, unpredictable audit results at year-end, and ongoing administrative work to track estimates vs. actual payroll.
Pay-as-you-go workers' comp eliminates all three.
Under a pay-as-you-go arrangement (available through our SurePayroll platform), your workers' comp premium is calculated from your actual payroll each pay cycle — not from estimates. The premium is paid each time you run payroll, integrated directly into the payroll processing workflow. Because premiums are always based on real numbers, the year-end audit produces no surprises: your premium matches what you actually paid.
| Traditional Workers' Comp | Pay-As-You-Go (SurePayroll) |
|---|---|
| Large upfront deposit required | No upfront deposit |
| Estimated payroll drives premiums all year | Actual payroll drives each payment |
| Year-end audit may result in large bill or wait for refund | No audit surprise — premiums match actual payroll |
| Separate invoice to manage each month | Integrated into payroll processing — one workflow |
| Cash flow disruption if payroll fluctuates seasonally | Premiums flex with your actual payroll cycle |
For businesses with seasonal staffing, project-based work, or fluctuating payroll — which describes most of the businesses we serve in Milpitas, San Jose, Fremont, and Santa Clara — pay-as-you-go is significantly simpler.
Integrate Workers' Comp Into Your Payroll
B&H Accounting & Tax Services offers pay-as-you-go workers' comp through SurePayroll — integrated directly into your payroll processing. No upfront deposit, no audit surprises, no separate workflow to manage. Call for a free 10-minute payroll evaluation.
Call 408-256-0339What B&H's Payroll Service Includes
When you run payroll through B&H, workers' comp isn't a separate policy to manage — it's built into the process. Here's what that looks like in practice:
- Pay-as-you-go workers' comp calculated and paid each pay cycle based on actual payroll — no deposit, no audit surprises
- Classification code tracking — when you add employees in different roles, we ensure the right classification code is applied
- Automatic rate tracking — California minimum wage and classification rate changes are monitored and applied without you having to ask
- New hire integration — workers' comp coverage updates automatically when you add a new employee
- Health, dental & vision — group plans available through SurePayroll's broker network, with premium deductions handled automatically through payroll
- HR tools included — employee handbooks, background checks, mobile PTO & sick time tracking
- Year-end employee perk — B&H payroll clients' employees are eligible for a discount on personal tax return filing
Consequences of No Coverage in California
California takes workers' comp compliance seriously. The consequences of operating without coverage include:
- Stop Work Order from the Labor Commissioner — your business must cease operations until coverage is obtained
- Civil penalty of $1,500 per uninsured employee per pay period during which you operated without coverage
- Criminal misdemeanor for first offense — up to $10,000 fine and/or one year in county jail
- Criminal felony for subsequent offenses — up to $100,000 fine and imprisonment
- Direct lawsuit liability — if an employee is injured while you lack coverage, they can sue you directly in civil court without the normal workers' comp limitations
The consequences of non-compliance are severe enough that workers' comp should be treated as a non-negotiable business expense, not an optional coverage to consider when cash is tight.
Workers' Comp FAQ for California Employers
Do I need workers' comp if I only have one employee?
Yes. California law requires workers' comp the moment you hire your first employee, regardless of whether they are full-time, part-time, or seasonal. There is no small-business threshold.
Are independent contractors covered by workers' comp?
Contractors you engage as true independent contractors are generally not covered under your workers' comp policy. However, California's ABC test (AB5) applies a strict three-part test for independent contractor status. Many workers classified as contractors may legally be employees — and if one is injured, you could face liability. If you have contractors who work regularly for you, it's worth reviewing their classification.
Can I get workers' comp through my payroll provider?
Yes. Through B&H's SurePayroll platform, pay-as-you-go workers' comp is available through approved carriers and integrated directly into your payroll processing. You don't manage a separate policy — it runs with your payroll.
What's the difference between workers' comp and general liability?
Workers' comp covers injuries to your employees that occur on the job. General liability covers injuries to customers, vendors, or third parties on your business premises or caused by your operations. You typically need both. They are separate policies that cover different risks.
How much does workers' comp cost?
Premium varies by industry classification code, payroll size, and claims history. An office-based business might pay as little as $0.20 per $100 of payroll; a higher-risk trade business might pay $5–$20 or more per $100. Contact B&H for a cost estimate based on your industry and payroll.
What happens if an employee is injured and I have coverage?
You report the injury to your insurance carrier within the required timeframe (typically one business day in California), provide the employee with a DWC-1 claim form, and cooperate with the carrier's investigation. The carrier manages the claim and pays benefits directly. You are generally shielded from direct lawsuits by the injured employee as long as coverage was in force.