California's Minimum Wage Increase May Create Real Risk Of Increased Worker's Comp Insurance Audit Costs
With wages increasing, this directly impacts your Worker's Compensation Insurance costs because your rates are based on payroll. It is important that you contact your agent to let them know what your new payroll is running on average per month and have the agent add that extra payroll to your insurance policy. This will help reduce your audit at the end of the policy term.
More importantly, when your policy is renewing it would be wise to see if your agent can get your business switched over to the PAYGO (Pay-As-You-Go) billing plan. Many of the insurance companies that Tague Alliance Insurance works with for Worker's Compensation insurance have this option for our clients.
If your payroll has increased significantly do to the minimum wage increases, please reach out to your agent to find out how much additional premium cost you are now incurring. This will help you avoid a nasty Work Comp Insurance payroll audit.
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Below is an example (not real-world) that provides a fictitious scenario for a restaurant with 25 employees using minimum wage at $15.50 vs. $16.50 (the minimum wage in San Diego).
Assuming a small restaurant with 25 employees and an average workweek of 40 hours,
If the restaurant pays an average wage of $15.50 per hour, the weekly payroll cost would be:
25 employees x 40 hours per week x $15.50 per hour = $15,500 per week
The annual payroll would be:
$15,500 per week x 52 weeks = $806,000 per year
If the restaurant were to increase the average wage to $16.50 per hour, the weekly payroll cost would be:
25 employees x 40 hours per week x $16.50 per hour = $20,625 per week
The annual payroll would be:
$20,625 per week x 52 weeks = $1,073,500 per year
The difference in annual payroll costs would be:
$1,073,500 - $806,000 = $267,500
So, the total annual cost difference for a small restaurant payroll with average wages at $16.50 per hour versus $15.50 per hour with 25 employees would be $267,500.
If the small restaurant with 25 employees and an annual payroll difference of $267,500 were to have a workers' compensation insurance rate of $5.50 per $100 of payroll, the annual cost of workers' compensation insurance would be:
($267,500 / 100) x $5.50 = $14,713.50
Therefore, the total additional cost of workers' compensation insurance for paying employees $16.50 per hour instead of $15.50 per hour with a workers' compensation insurance rate of $5.50 per $100 of payroll would be $4,953.50 per year.
It's important to note that workers' compensation insurance rates can vary widely depending on the state, the industry classification code, and the specific circumstances of the business. The above calculation is based on a hypothetical rate and should not be considered as a definitive estimate. Additionally, other costs, such as payroll taxes, benefits, and insurance, would also need to be factored in, and the actual cost difference could be higher or lower depending on various factors.