Insurance for Restaurants

Restaurant worker classification and insurance for restaurants

Many workers in the food industry are employed part-time, temporarily, or seasonally. However, this does not mean that restaurants are exempt from carrying workers’ compensation insurance according to most states’ work compensation laws. In Oklahoma, a potentially relevant exemption to the restaurant industry is the small family business exemption, in which businesses with five or fewer employees, all of whom are related to the owner, may not need to carry workers’ compensation insurance for those employees. For example, a small, family-run deli or diner might fall under this category. However, most restaurants would likely not qualify for an exemption. Business owners should contact the appropriate local government entity to find out about exemptions and qualification statuses in their areas. In practice, this means that an employee of a restaurant who becomes injured or ill as a result of a work-related duty may file a restaurant workers’ comp claim. Receiving work injury compensation is important for any injured employee, as it can help them recover more quickly through access to appropriate medical attention. Workers’ comp coverage is also beneficial for the business because protecting employees also safeguards the business from potentially expensive liability lawsuits. Workers’ compensation insurance for restaurants is critical, and more importantly, usually mandatory.

Despite being classified as employees, many front-of-house workers, such as servers and bartenders, make part of their earnings in tips from patrons. These tips may come in the form of additions to credit card bills, which would be paid to servers later, or cash, given directly to the servers. Many front-of-house workers “pool” their cash tips, or combine them all into a single pot, then divide them evenly at the end of the night. In a tipping system like this, part of an employee’s wages are paid by patrons, not the business.

Understanding workers’ compensation insurance for restaurants

While workers are technically required to report their tips to their employers, many do not. This can have consequences for the restaurant payroll. Without tips, the total payroll may appear artificially low. This can affect the restaurant workers’ compensation insurance rates because insurance companies use the company’s payroll to calculate workers’ comp premiums.

To calculate workers’ comp premiums, insurance companies use a formula based on a certain rate for every $100 of payroll. If workers and the business owner are under-reporting their payroll, the insurance premiums may be temporarily low, but the business is at risk of paying a higher rate if this under-reporting is discovered later in a workers’ comp audit. It is also important to understand that premiums can be affected by industry risks and an employer’s previous loss history.

Some restaurants have experimented with a no-tipping system, in which the business pays the workers a higher wage and does not ask its patrons to give tips to the staff. This system may make calculating workers’ comp premiums easier since there are no tips to declare as part of the payroll. While this system works for some restaurants, others cannot absorb paying the higher wages and financially rely on patrons to tip. It’s still a question as to whether this model will become popular or successful in the American food industry. In either model, businesses would still be required by the state to carry workers’ comp insurance for restaurant workers.

Why CompSource Mutual

Restaurants both big and small can benefit from carrying workers’ compensation coverage. As Oklahoma’s longest-standing provider of workers’ compensation insurance for restaurants, we’re equipped to support you with industry expertise, outstanding customer service, and fair pricing. Connect with us today at 800-347-3863 or request a quote.