California's workers' compensation experience rating system is a merit rating system intended to provide employers a direct financial incentive to reduce work-related accidents. The experience rating system objectively distributes the cost of workers' compensation insurance more equitably among employers assigned to particular industry classifications.

The regulations governing the Experience Rating System are contained in the California Workers' Compensation Experience Rating Plan—1995 (ERP). The ERP is part of the California Code of Regulations (Title 10; Chapter 5, Section 2353.1) and is approved by the Insurance Commissioner. Not all employers are eligible for experience rating. See Determining Eligibility.

An experience modification, which is expressed as a percentage, compares the loss or claims history of one company to all other companies in the same industry that are similar in size. Generally, an experience modification of less than 100 percent reflects better-than-average experience, while an experience modification of more than 100 percent reflects worse-than-average experience. Accordingly, an experience modification that is greater than 100 percent usually increases the cost of an employer's workers' compensation insurance premiums, while an experience modification that is less than 100 percent usually decreases the cost of an employer's workers' compensation insurance premiums.

For those businesses that qualify, experience rating is mandatory. Today, more than 130,000 California businesses are experience rated, representing approximately 80 percent of all California workers' compensation insurance premiums paid. Using information submitted by insurers, the WCIRB calculates and publishes experience modifications for each qualified business. Regardless of which insurer provides the workers' compensation insurance policy, if an employer is experience rated, their experience modification must be applied to their policy.