You’re a business owner with employees, and you just got a new California workers comp policy. Everything is good except for all the money that you’re spending.
Of course, you understand that you’re supposed to make monthly payments, but there’s this thing that shows up on your first payment called a “deposit.” What is that? Is it a down payment? Is it something else you have to pay in addition to the down payment? What is going on?
The answer is: it depends…. Let me explain. Whether the deposit is part of your premium or in addition to your premium depends on which insurance company you’re with.
The good news is that literally almost all companies include the deposit as part of the premium, which you will pay at the end of the policy, term or in the beginning. In other words, when they say “deposit” they are really saying “down payment.”
There is only one company that I know of that requires you to pay a deposit in addition to the premium, and that is the State Compensation Insurance Fund.
State Compensation Insurance Fund (more commonly known as State Fund) is a special insurance company. They are chartered by the State of California to insure businesses that for whatever reason cannot get insurance from any other company. As it turns out, State Fund is this largest provider of workers comp in California. (Why the insurer of last resort is the biggest insurance company is a topic for another day).
The way State Fund works is this: Your initial payment is made up of the deposit, taxes & assessments, and the first month’s payment. State Fund holds your deposit for the entire year. If you decide to renew with them, they will figure out a new deposit amount based on your previous year’s payroll, and take the money from your already-paid deposit and apply it to the new one (this is often called a “rolling deposit”). If you don’t renew your policy, they will hold your deposit until the final audit. If the final audit results in you owing them money, they will take it from the deposit. If at that point there is any money left in the deposit, you get it back.
But for the rest of you in the standard insurance market, don’t worry: that deposit is really just a down payment; more premium paid up front, just like the rest of your insurance policies.
That’s how a workers compensation deposit works.