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Multiple Enterprises

Under the Single Enterprise Rule, all employees engaged in activities that are "normal and usual" for an industry are covered by one classification. If a business has two or more operations that do not normally prevail in a business described by a single classification, then the Multiple Enterprises Rule may permit or require the assignment of multiple classifications to the operations. The Multiple Enterprises Rule is found in Part 3, Section III of the California Workers' Compensation Uniform Statistical Reporting Plan - 1995. Generally:

  1. Operations that are physically separated and conducted with no interchange of labor are separately classified.
  2. Operations that are not physically separated or have an interchange of labor are classified as follows:
    1. If the operation that develops the most payroll (exclusive of Miscellaneous Employees) is described by a classification that has the higher pure premium rate, then all operations shall be assigned to the higher-rated classification.
    2. If the operation that develops the most payroll (exclusive of Miscellaneous Employees) is described by a classification that has the lower pure premium rate, then the higher rated classification is assigned to all employees, except:
      1. Employees engaged solely in activities described by the lower-rated classification; or
      2. Employees for which complete and accurate payroll records are maintained to identify the portion of their payroll earned in each activity; payroll for activities described by the lower-rated classification can be assigned to the lower-rated classification.
    3. If the distinct operations are described by classifications having the same pure premium rate, then each operation shall be separately classified.

Physical separation is achieved when operations are separated by permanent walls not less than eight (8) feet in height that are constructed from standard building materials or when operations are performed on separate floors or in separate buildings. Interchange of labor means employers alternate between 2 or more separately classifiable operations and engage in a single activity that is integral to two or more separately classifiable activities. There is one important thing to remember regarding the Multiple Enterprises Rule. In order to divide an employee's payroll among classifications, you must maintain payroll records that accurately record an employee's time spent working in each operation. Otherwise, all of that employee's payroll will be assigned to the highest-rated classification.

Multiple Enterprises Example

A company manufactures canvas awnings, and the owners decide to purchase a garment factory and operate the two businesses separately. In this case, both classifications, 2576, Awning, Tarp or Canvas Goods Mfg., and 2501, Clothing Mfg., will apply. However, if awning and garment operations are conducted in the same room, both classifications will apply only if the lower-rated classification generates the larger amount of payroll. If a common cutting or sewing department works in support of both the awning and garment operations, interchange of labor exists.

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