Workers’ compensation insurance is one of the largest and least-understood expenses for California contractors. Many contractors assume high costs are unavoidable — but that’s rarely true.
This guide explains how workers’ comp works, how insurance companies actually price your policy, and practical, proven ways residential contractors can reduce costs in 2026 and beyond.
How Workers’ Compensation Insurance Works
Workers’ compensation insurance provides medical care, wage replacement, and benefits to employees who are injured on the job. In California, most contractors are legally required to carry workers’ comp as soon as they hire employees.
For contractors, workers’ comp is not just an insurance policy — it’s a risk financing system that directly ties your claims history, payroll, and safety practices to what you pay.
How Workers’ Comp Is Priced for Contractors
Your workers’ comp premium is primarily based on four factors:
1. Payroll
The more payroll you have, the higher your exposure and base premium.
2. Class Codes
Each trade (carpentry, roofing, framing, electrical, etc.) has a classification code with its own rate. Misclassified payroll is one of the most common and expensive mistakes contractors make.
3. Experience Modification Factor (Mod)
Your Experience Mod compares your claims history to other California contractors of similar size and trade. A mod of:
- 1.00 = average risk
- Above 1.00 = you pay more
- Below 1.00 = you pay less
Even small changes to your mod can mean thousands of dollars per year.
4. Insurance Carrier & Program Structure
Different carriers evaluate risk differently. Being placed in the wrong program can dramatically increase costs.
The Minimum Achievable Mod: What Contractors Need to Know
One of the most important — and least explained — concepts in workers’ comp is your minimum achievable mod.
What Is the Minimum Achievable Mod?
Your minimum achievable mod is the lowest realistic experience mod your company can reach, based on:
- Your company size
- Payroll volume
- Trade classifications
- Claim frequency vs. severity
Smaller contractors often cannot reach the same low mods as very large firms, simply because fewer employees mean each claim carries more weight.
Why This Matters
If your current mod is significantly higher than your minimum achievable mod, you are likely overpaying.
Knowing this number allows you to:
- Set realistic cost-reduction goals
- Measure whether claim strategies are working
- Understand how much premium is “locked” in your mod
How Contractors Can Find Their Minimum Achievable Mod
Contractors typically learn this through:
- Detailed loss analysis
- Mod worksheet reviews
- Carrier benchmarking
This is rarely provided proactively by standard insurance agents — but it is a critical planning tool for controlling workers’ comp costs.
Proven Ways California Contractors Can Lower Workers’ Comp Costs
1. Control Claim Frequency
Frequent small claims often hurt more than one large claim. Clear reporting procedures, safety training, and early medical management make a major difference.
2. Get Injured Workers Back to Work Faster
A structured return-to-work program reduces claim costs and keeps your mod from climbing.
3. Audit Payroll & Classifications
Incorrect class codes or misallocated payroll can inflate premiums for years.
4. Review Your Mod Annually — Not Just at Renewal
Waiting until renewal limits your options. Ongoing reviews create leverage and flexibility.
5. Work With a Construction-Specialist Agency
Generalist agencies often miss cost-saving opportunities specific to residential contractors.
Ghost Policies for California Contractors
Many residential contractors — especially owner-only businesses or those using subcontractors — may only need a Ghost Policy.
A ghost policy:
- Provides proof of workers’ comp coverage
- Has little to no payroll exposure
- Satisfies CSLB and contract requirements
For the right contractor, a ghost policy can save thousands per year compared to a traditional policy.
How The Contractors Resource Center Helps California Contractors
As the host of ContractorTV on YouTube, I provide practical, educational content for California contractors. The channel is sponsored by The Contractors Resource Center, where we specialize in helping contractors start, grow, and manage a successful construction business. We do this by providing free and discounted legal, finance, and insurance services, as well as our exclusive line of insurance products, available only through The Contractors Resource Center.
Our team can help you:
- Understand and manage your workers’ comp policy
- Identify your minimum achievable mod
- Audit payroll and classifications
- Determine if a Ghost Policy is right for your business
- Reduce unnecessary insurance costs
For a quote on our ContractorCOMP Workers’ Comp policy — designed for Ghost Policies and California contractors with fewer than 20 employees — click here: Get a Quote
Want to Know If You’re Overpaying in 2026?
If you’re a California residential contractor and want to understand your policy, mod, or ghost policy options, we can help.
📞 Contact Kevin at 530.320.3617
📧 [email protected]
The Contractors Resource Center specializes in workers’ compensation insurance, cost-control strategies, and ghost policies for California contractors.