Business is booming for your one-person operation, and it is time to expand and hire some staff. As you put together the job description and prepare to interview candidates, don’t forget an important—and, in some cases, legally required—component to being an employer: workers’ compensation insurance.
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Restaurant workers’ comp insurance is a coverage that is required in nearly every state, even for restaurants with only one part-time employee. It gives liability protection to the employer if an employee gets injured or sick due to work, and it helps the injured employee with medical bills, wage replacement, and even return-to-work programs. Workers’ comp cost for restaurants comes in around $100 a month.
Key Takeaways:
- Workers’ compensation insurance is a policy for employees who become injured or ill due to their jobs. It helps them with medical bills, wage assistance, and return-to-work programs.
- While Texas and South Dakota do not have any specific requirements, workers’ comp is required in 48 states and Washington, D.C.
- There are four states that manage and sell workers’ comp; the rest all have a marketplace where you can purchase it from insurance companies.
What Is Workers’ Comp Insurance for Restaurants?
Workers’ compensation is a coverage with multiple parts, and each part does something very specific either for the employer, the employee, or both. In the simplest terms, if an employee becomes injured or ill due to their work, it will help them recover and pay some form of wage replacement.
Restaurants typically employ a significant number of young workers, including teenagers. This leads to an increased chance of a workers’ comp claim. One study found there was a 20% chance of a teenage restaurant worker filing a claim. Of those injuries, 26% were from cuts. So, it is important to understand what you’re purchasing and why.
State Guide to Workers’ Comp Requirements for Restaurants
Workers’ compensation insurance is the only small business policy that is basically required nationwide. But since insurance isn’t federally regulated, nothing is straightforward or simple. Each state has its own requirements, except for Texas and South Dakota. Those two states do not require workers’ compensation outright, although there are still certain situations where it is mandated.
To help you navigate all of this, we’ve put together a guide for all 50 states and Washington, D.C., letting you know the threshold for when workers’ comp must be offered to employees. There is also a link to the state agency that oversees workers’ comp for each state where you can find all of the specific requirements for your state. Expand the tab below to see state by state requirements.
How Much Workers’ Comp Costs for Restaurants
Workers’ comp premium will vary depending on the state and the specifics of your business: payroll, number of employees, claims history, and restaurant type will all impact the cost of workers’ comp. For a smaller restaurant, you can expect to pay between $500 to $1,700 annually for workers’ compensation.
For 50% of Next Insurance customers, workers’ comp policies cost between $25 to $150 a month. The median for its restaurant policyholders is $111.
Looking around to see if this price is representative of what others charge, Insureon reports that its customers pay an average of $115 a month for workers’ compensation.
How Workers’ Comp Insurance Premium is Calculated
Workers’ compensation premium is calculated in a straightforward manner by insurers. All of them follow a formula that helps them calculate how much workers’ comp costs for restaurants.
The formula is simply:
Estimated payroll / $100 X Premium Rate for the Class Code X Experience Modification Rate (EMR)
So, let’s break this down. First, when you apply for workers’ comp insurance one of the questions will be the estimated payroll your company will pay. That number is divided by $100.
Every industry has class codes to describe the different work each of its employees engages in. The National Council on Compensation Insurance (NCCI) maintains a class code database that is used by 35 states. Each class code has a premium rate attached to it. For restaurants, some important class codes are:
- 9082 Restaurant
- 9083 Fast food
- 9058 Food service
- 9079 Catering
- 9084 Bar, tavern, nightclub
You can look up the class code for your industry at the NCCI’s website.
Here is where it’s easy to get tripped up: one restaurant can have multiple class codes depending on what each employee does. When you’re getting a quote, make sure that the rates accurately reflect the class codes of your employees.
This is then multiplied by the experience modification rate or EMR. The EMR is based on the experience of your business and your claims history. This number can change over time, especially if you have a claim or go a long period without having one.
Workers’ Compensation Audit
If you have a workers’ compensation policy, then you’ll need to be familiar with a workers’ comp audit. Here’s the deal: remember how the premium is calculated using your payroll and class codes? What happens if your business changes?
Let’s say growth is exponential and you go from a breakfast cafe to breakfast, lunch, and dinner with every table full. You will understandably have to hire more employees and the payroll will increase. You may even introduce some new positions, like a full-time hostess.
The point is simply this: the insurance company wants to make sure your premium is accurate. So, every year, there will be an audit of your payroll. If you underpaid for workers’ comp, there will be a bill to make up the difference.
However, in the unfortunate event that business wasn’t good and you overpaid on the insurance, then the insurance company will pay you a refund.
How to Choose the Best Workers’ Comp
So, the first thing to understand about finding workers’ comp is this important fact: there are four states where the government is the exclusive provider of workers’ compensation. These are called monopolistic states, and they are North Dakota, Ohio, Wyoming, and Washington. So if you are in those states, you’ll have to purchase the policy following their established guidelines.
Outside of those states, here are some tips on how to find workers’ comp.
1. Compare Quotes
Just because there is a formula for workers’ comp, doesn’t mean that every provider charges the exact same rate. The formula provides regularity and some insight into the cost but insurance companies are allowed to still factor in their own risk assessments and underwriting procedures. Simply put, you may find workers’ comp vary at a great rate.
2. Consider the Provider Benefits
How a claim is handled can make a big difference. Some providers will offer services and benefits to try to mitigate the cost of the claim and help your injured employee. One example is a 24/7 triage line staffed with nurses who can help provide guidance immediately following an injury. Or, it can include a prescription benefit program so the employee can get prescribed medicine without paying any out-of-pocket costs.
Other providers will have return-to-work programs, often with local nonprofits, so the injured employee can return to some form of work. This will help decrease the cost of the claim and lead to a swifter resolution.
Finally, another benefit is the on-site evaluation of your business by risk managers. You may think you’ve got a safe kitchen but blindspots are called blindspots for a reason. At no cost to you, many providers will do a site assessment and then provide you with tips on ways to improve the safety of your workplace.
3. Ask About Audits
Audits can be simple and handled quickly or they can be…a bit of a pain. Your restaurant takes enough of your time and attention. When it comes to premium audits, some companies will do on-site audits and require paperwork and time. Some of the newer ones, like Next Insurance, can conduct audits that are completely digital and resolved quickly.
4. Inquire About Dividend Plans
There are different types of insurance companies: some are owned by the policyholders and others are held privately or by shareholders. Each one functions differently in terms of profit and loss. Additionally, there are special types of policies for workers’ comp called dividend plans. If you purchase a dividend plan, the insurer will conduct an audit when the policy expires to determine if it was profitable. This is not the standard audit each company performs on a workers’ comp policy.
If it was a profitable policy, and the company approves of it, a payment called a dividend will be made to your company. This process can take some time. It is worth investigating to see if a dividend plan is offered and if your restaurant would qualify for it.
Frequently Asked Questions
Still have some lingering questions? We’ve got you covered!
Last Bite
No matter how safely you’ve designed your kitchen and how much training your staff has, sometimes, things can just go wrong—an employee gets injured or becomes ill because of work. When that happens, it is important to know that your employee will be taken care of and that your business is protected. Workers’ compensation insurance for restaurants does both, and that is why having this insurance is an important part of a successful business plan.
