6 Tips to Reduce your Restaurant Workers’ Compensation Costs
Controlling costs is crucial for maintaining a healthy bottom line in your restaurant. While there are many ways to save money, one effective strategy is to reduce the cost of your workers’ compensation policy.
Many restaurant owners and managers think that restaurant workers’ compensation insurance costs are fixed, but this isn't entirely true. While your projected payroll largely determines your premium, there are other factors that can influence the cost.
In this article, we’ll explore six key tips to help you reduce your restaurant’s workers’ compensation costs and keep your coverage affordable.
1 - Get your Classifications Right
Insurance companies need accurate information to set your workers’ compensation coverage. They estimate the risk for your employees and base your premium costs on this information. Each job role has a different risk level.
Insurance companies use employee class codes to standardize the risk levels. Correct codes ensure you pay the right amount for coverage, but incorrect codes can raise your costs.
Verify your Restaurant's Classification
Work with your insurance agent to make sure that your restaurant is classified correctly based on the type of eatery it is. Small differences between types of eateries in different states can change your restaurant’s workers comp class codes.
For example, being classified as Code 9082 (eat-in restaurants) instead of Code 9083 (fast-food restaurants) can change how much you pay for insurance premiums.
Classify your Workers Correctly
Make sure that each of your employees is classified correctly according to their job roles. For example, make sure that your bookkeeper is classified as clerical - class code 8810 and not as a restaurant worker. The national average rate of one leading carrier for restaurant workers is $1.06 per $100 of payroll, while it's only $0.11 for clerical workers. This difference can save you $300 annually per employee — and that adds up quickly with more staff.
Consider excluding Owners
Excluding owners from your payroll calculations can also save money. For a large restaurant, excluding the owner may not significantly reduce costs, especially if the owner’s role is primarily clerical.
However, for a small restaurant with a $50,000 payroll for three part-time employees, excluding the owner who works as a chef can halve the payroll costs.
2 - Create a written Safety Program
Looking to truly cut down on your workers’ compensation insurance costs?
The key is to run a safe business. And the best way to do that is by having a formal safety program. It takes some planning and effort, but it pays off in the long run.
Analyze Industry Claims and Follow Guidelines
Start by working with your insurance agent to analyze industry claims and identify common injury patterns. You will be able to see what the most common injuries for restaurants are. This analysis can help you implement measures to reduce risks.
Follow OSHA guidelines for restaurants and familiarize yourself with industry-specific rules and best practices. Reach out to your industry association for additional guidance, as they often provide written safety programs that can be valuable references.
Here are some best practices to consider integrating into your safety program:
- Encourage deliberate movement to prevent rushing and reduce the risk of tripping and falling
- Regularly check fire suppression systems to ensure they are in working order
- Keep the workplace uncluttered and organized to minimize distractions and prevent injuries
- Have independent contractors service equipment with safety components and prioritize regular maintenance to prevent injuries caused by faulty equipment
- Invest in slip-resistant flooring and mats, and use compatible cleaning products to maintain slip-resistant qualities
- Require employees to wear non-slip footwear
Create the Written Program
Next, develop a written safety program that outlines processes, procedures, and expectations for all employees. Different departments may require unique safety measures, so tailor your program accordingly.
Form a Safety Team
Create a safety team by choosing employees from across the business who prioritize safety. These team members should meet regularly—at least once a month—to discuss safety-related issues throughout the organization. The safety team should also designate at least one person (preferably more than one) to ensure safety protocols are followed.
Providing Customized Training
Provide customized safety training for all employees. The safety team should participate in selecting or developing the training materials. Ensure all employees confirm they have received the training and understand the safety program.
With a strong safety program in place, adherence to OSHA standards, regular safety meetings, and a focus on safety, you can significantly reduce the rate and risk of injuries in your workplace, ultimately controlling workers’ compensation costs.
3 - Implement a Return-to-Work Program
Injuries and accidents will happen, no matter how cautious you may be. It’s important that when an employee is injured on the job, you provide them with a road to recovery.
A return-to-work program is designed to assist injured employees in their recovery by assigning them light-duty tasks.
By paying the employee for the work performed, the insurance company only has to cover medical costs and not lost wages. This reduces the impact of an injury on your insurance rates and lowers the indemnity and wages part of workers' compensation insurance.
A return-to-work program is one of the most effective yet often overlooked strategies for reducing workers’ comp costs.
Many insurance companies will ask if there is a formal return-to-work program and then offer reduced rates if one is in place.
Keep in mind:
- The plan should include the employee’s physician. The doctor will make sure the employee is getting the right care and that the tasks they are asked to do are suitable for them while they are recovering. They will also track their progress until they can go back to their usual duties.
- Light duty means doing tasks that are not too physically demanding, to help the employee recover.
For example, if a server breaks an ankle, light-duty tasks could be taking phone or online orders, doing purchasing, or handling the cash register, as well as other behind-the-scenes activities.
You might also consider allowing more breaks and letting the work be done while sitting down.
- It should be a formal program. Create a written framework that explains the program to employees but includes some flexibility so that it can be adapted to suit different needs.
Check with your restaurant association - they often provide resources to help create a return-to-work program.
4 - Formalize your Drug and Alcohol-Free Workplace Policy
The restaurant industry is at high risk for substance use disorders. The Substance Abuse and Mental Health Services Administration found the restaurant industry to be the most at risk for illicit drug use and substance use disorders and the third most at risk for heavy alcohol use.
Substance abuse is not confined to any specific type of restaurant, and can be seen in workers of fast food, casual, and fine dining restaurants.
By creating a formal drug and alcohol-free workplace policy and then ensuring it is followed, you can dramatically reduce the risk of employees being injured on the job.
In turn, that will reduce your risk level and the amount you pay for workers’ compensation insurance each year.
Your policy should outline the consequences of infractions and encourage employees to seek help if they struggle with substance abuse. It should also support employees returning to work after dealing with substance abuse issues.
Again, your restaurant association may provide resources to help you develop this program.
5 - Lower your Ex-Mod
Your business’s Ex-Mod (experience modification rate) is an important factor that affects your workers’ compensation costs. Essentially, this is a calculation that compares your specific loss history with those of similar businesses.
The more frequent and/or severe your losses, the higher your Ex-Mod will be. In turn, that drives your workers’ compensation premiums up.
While you cannot eliminate your Ex-Mod, you do have some control here.
Reducing the number and severity of your workers’ compensation claims is the most effective way to lower your Ex-Mod.
A formal safety program and a return-to-work program are crucial parts of this strategy. These programs directly lower the indemnity (payments for the lost wages) portion of the claim thus having a very positive impact on your ExMod overall.
It's important to maintain these reductions over time. Even if your Mod is high now, implementing these measures can help lower it over time — don't give up!
6 - Ask about Dividends
Many business owners overlook the potential savings from dividends on workers’ compensation insurance. Ask your insurance agent about applying dividends.
The process is simple: you pay the full amount upfront and receive a dividend after the audit. While specific terms apply, you could get back 5% or more of your audit.
When it comes to dividends, the rule is — it never hurts to ask!
Want some help reducing your Workers’ Compensation Insurance Costs?
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Note: The information provided in this blog is intended for general informational purposes only and is not a substitute for professional legal or insurance advice. Laws and regulations regarding workers' compensation insurance are complex and vary by state and by specific circumstances. Therefore, readers are encouraged to consult with a qualified legal or insurance professional to obtain advice with respect to any particular issue or problem they might have.
Mordechai Kamenetsky, co-founder and lead agent of Kickstand, is recognized as an expert in workers' compensation. He is passionate about helping small businesses manage risks and lower their workers' comp costs. In his articles, he educates readers and clients on the intricacies of workers' comp insurance.
Legally, workers’ comp is not needed for 1099 employees. However, if the employee lacks coverage, you may be held liable in case of injury. Also, if a state or federal authority determines your 1099 workers are not in fact independent contractors, they must be reclassified as employees. That also means you’re required to provide them with workers’ compensation insurance.
