Your restaurant is growing and you need to hire another employee. When you do that, however, the employee count for your business will move into the threshold that makes workers’ compensation a requirement. So, you get a quote—and you are surprised at the amount.
Naturally, you want to know about the factors increasing restaurant workers’ comp insurance costs. Fortunately, a few factors are not beyond your control, and this can help you manage your workers’ compensation insurance premium. But to get there, you must first understand how the premium is calculated.
Restaurant Workers’ Comp Insurance Cost Factors
All workers’ comp premiums are calculated using a standard formula. Understanding how that formula works will go a long way in understanding the contributing factors increasing restaurant workers’ comp insurance costs.
To calculate workers’ comp, take the employee’s estimated annual payroll (divided by $100) and multiply it by the premium rate for the class code, then by the experience modification rate. The formula is:
(Payroll ÷ $100) × Class Code Rate × Experience Modification Rate = Premium
Let’s break down each element below.
Experience Modification Rate (EMR)
The EMR is a way to compare the loss history of your business with what is expected for the restaurant industry. In the simplest terms: the EMR will increase if your restaurant has more worker comp claims than similar ones in the food industry.
The EMR is a set number of 1.00. The higher the number goes, the more your premium will increase. The following will impact your EMR:
- Age of your business: If your business is new, there will be no impact on the EMR
- Claims history vs industry: If your business has more claims than others the EMR will increase if it has fewer claims than your industry the EMR will decrease.
Employee Payroll
Because the employee payroll is part of the premium calculation, it will have a direct impact on your workers’ comp insurance cost. As your business grows, the premium will increase, but if the business shrinks, the premium will go down, too. Depending on the type of policy, these changes will be addressed at the end of the year or throughout the year.
Industry Class Code
All types of jobs are assigned a class code called the industry class code. These codes are set by the National Council on Compensation Insurance for 35 states. The rest use a variety of systems.
While they are called class codes, the codes change by job type. This is important because a hostess will have a different class code than a chef. It is important to carefully review the class codes assigned to your employees to make sure they are accurate; otherwise, you may end up paying too little or too much for workers’ compensation.
How to Manage Your Workers’ Compensation Premium
Some things, like your payroll or number of employees, are very hard to control if you want a growing business with happy employees. But, that doesn’t mean there aren’t proactive steps you can take to address the factors increasing workers’ comp insurance costs.
1. Set Up a Workplace Safety Program
One of the biggest drivers in your workers’ comp cost is your claims history. That means it is very important to foster a safe workplace for your employees. Part of this is understanding the risks.
This means you develop and implement a comprehensive program to train employees in things like knife skills and kitchen lingo like “behind” or “corner.” Safe holding times for hot food are important to reduce the risk of a burn. Keeping your employees safe helps keep premiums lower and it helps your business run smoother. A study by Travelers found the average amount of time an injured employee misses from work is 83 days1.
2. Double-check Classifications
It cannot be emphasized strongly enough that a misclassified worker can end up costing your business. There are multiple class codes for restaurants, and they can change per industry and state. For example, there are class codes for food service workers in a retirement center. This code will be different from one working in a fast food restaurant or a fast-casual restaurant.
In New York, there is a class code for restaurants that receive more than 50% of their revenue from the sale of alcohol. Is there gratuity? That can impact the class code.
Incorrect classifications can mean you overpay for your workers’ comp insurance, so take the time to make sure this part is correct.
3. Types of Workers’ Compensation Insurance Plan
There are different types of workers’ compensation insurance plans. The type typically comes down to the frequency of pay along with any type of dividend program. Some providers will integrate your workers’ comp with your payroll so that you “pay as you go.” This results in a more accurate workers’ comp premium because it accurately reflects your employee payroll.
Also, some providers will offer a dividend plan. Similar to a mutual insurance company, a dividend plan allows the policyholder to participate in the insurance company’s profits. To note, there are multiple types of dividend plans and many have a premium threshold that can be challenging for a small business to meet. Dividend payments are typically contingent on approval by the board of directors of the company, so it is not a guaranteed payment. But, if you are looking for ways to save, dividend plans are geared toward rewarding safe businesses and are one option to consider.
4. Carry Out a Drug- & Alcohol-free Policy
Sometimes, accidents happen and someone unfortunately gets hurt at work, and no amount of planning can keep it from happening. But other times, the employee isn’t thinking clearly because they are under the influence of alcohol or a drug. This is especially important to consider if your business is a bar where it may be expected that bartenders and servers share drinks or shots with patrons.
Instituting a strict zero-tolerance for drugs and alcohol in the kitchen will go a long way toward demonstrating your commitment to workplace safety and keeping your employees safe to carriers. In turn, this will help limit one of the factors increasing workers’ comp insurance costs.
5. Shop Around for Insurance
While there is a formula insurance companies use for calculating workers’ comp insurance cost, it isn’t the only way providers calculate the premium. Each provider will draw on their own data and underwriting procedures to determine the cost of workers’ comp for your business. As time-consuming as it can be, shopping around for insurance by getting quotes is a way to save money on your workers’ comp insurance.
Understand What Is Outside Your Control
Inherent in the nature of insurance is that some things, no matter how prepared you try to be, will be outside your control. These factors will also affect workers’ comp insurance costs for your restaurant:
- Zip code: Zip codes impact the cost of insurance simply because the cost of doing business in some areas is more expensive than others. If you really want to open a restaurant in Los Angeles, just understand that area will likely cost more than one in Sacramento or Bakersfield.
- Industry: The type of restaurant you have will impact the cost of workers’ comp insurance. If your business serves alcohol or is a bar, this class code is different from one for a fast food restaurant without alcohol or gratuity.
- State regulations: Workers’ compensation is regulated on the state level and some states even control the sale of workers’ comp by being the sole provider. Aside from forming a PAC and lobbying for legislative action, there is not much you can do when it comes to state regulations that impact workers’ compensation insurance.
FAQs
Last Bite
Workers’ compensation insurance is a wise investment for any restaurant owner. Not only is it likely required, but it helps both employees and employers in the event of an injury. But that doesn’t mean it is cheap. As you try to keep costs under control, thankfully, there are steps you can take to manage the factors that increase workers’ compensation insurance costs. Implementing a workplace safety program, checking classifications, and paying your premium as you go are all steps that can help you manage the cost of your insurance premium.
- https://asset.trvstatic.com/download/assets/travelers-injury-impact-report.pdf/b6befc8063d211eeb3e29e98f6b6ed6a ↩︎
