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class codes and tipping practices
February 27, 2024

Class Codes and Tip Practices: New Requirements and Exposures for Restaurants

Managers in the restaurant industry may need to reexamine their practices in light of changing rules and recent regulatory activity. Both workers’ compensation classifications and tip sharing practices require attention as restaurant risk management continues to evolve.

WCIRB Introduces Six New Codes

The Workers’ Compensation Insurance Rating Bureau of California (WCIRB) is introducing six new codes that will replace Classification 9079 starting September 1, 2024. Policies that start on or after this date will use the following new codes:

  • 9058, Hotels, Motels or Short-Term Residential Housing – food or beverage employees
  • 9080, Restaurants – full services
  • 9081(1), Restaurants – N.O.C.
  • 9082, Caterers, not restaurants
  • 9083, Restaurants – fast food or fast casual
  • 9084, Bars or Taverns – not restaurants

According to the WCIRB, the introduction of these new codes will facilitate a more discreet analysis of the payroll and claim characteristics of different types of restaurants. Initially, the six new classifications will all share a single advisory pure premium rate. However, once the WCIRB determines that there is enough payroll and loss data to evaluate the differences between these types of businesses, different advisory pure premium rates will be established. This means that restaurants will not see any changes to their experience ratings when the new codes go into effect, but changes may lie ahead in the not-too-distant future.

How Can Restaurants Prepare for the New Codes?

Restaurant leaders should ensure that their establishments are being classified correctly under the new codes. The WCIRB says it will launch a campaign ahead of the September effective date to provide education and boost awareness, and this campaign will include a series of webinars and online tools to help employers, agents and insurers understand the new classifications.

As always, strong risk management is an essential part of controlling costs. Some types of restaurants may eventually see changes in their premiums based on the new classifications, but their individual experience modifier will also impact rates. By keeping claims severity and frequency below the industry average, restaurant leaders can also keep their premiums down.

DOL Cracks Down on Tip Sharing

Tip pooling is a common practice at many restaurants. However, shared tipping practices could land restaurant owners and managers in hot water if they run afoul of federal regulations, and at least two restaurants have come under scrutiny recently.

According to the U.S. Department of Labor (DOL), a tipped employee is an employee who is engaged in an occupation in which they regularly receive more than $30 in tips each month, and the handling of tips for these employees is subject to regulation under the Fair Labor Standards Act (FSLA). Notably, tip pooling is allowed among eligible employees, but managers, supervisors and other employers are not permitted to keep tips for any purpose. This is true regardless of whether an employer takes a tip credit and whether it’s done directly or through a tip pool, even if the employee receives at least the minimum wage.

The DOL says 11 restaurants operating under Pizzicato, a Portland-based restaurant chain, violated tip pooling rules by allowing managers to participate in the tip pool. The DOL’s investigation also found the chain hired a 17-year-old to drive a car in violation of FLSA’s hazardous occupations for minors rules. As a result of these infractions, the restaurant chain is required to pay more than $540,000 to 367 employees, including $270,101 in back wages and $270,101 in liquidated damages.

According to The Oregonian, the DOL has also accused McMenamins of illegally forcing employees to share tips with managers. In January, employees received a letter from the DOL stating that $800,000 in tips earned by them may have been illegally withheld and shared with Assistant Managers. The DOL asked McMenamins to return the tips, but after the restaurant refused, the DOL decided not to take further action, so employees may need to file lawsuits on their own to receive compensation. The Oregonian says that McMenamins has denied any wrongdoing, arguing that the Assistant Managers and Assistant Assistant Managers are hourly, entry-level, non-exempt employees who are entitled to tips.

What Does the Tip Pool Crack Down Mean for Restaurants?

While tip pooling is allowed among eligible employees, restaurants may face investigations and fines if they include anyone who may be interpreted as a manager participate. This can get especially complicated when employees are given titles with the word “manager” but are not considered actual managers per DOL rules. According to the DOL, manager and supervisors are employees “(1) whose primary duty is managing the enterprise or a customarily recognized department or subdivision of the enterprise; (2) who customarily and regularly directs the work of at least two or more other full-time employees or their equivalent; and (3) who has the authority to hire or fire other employees, or whose suggestions and recommendations as to the hiring or firing are given particular weight.”

Is Your Restaurant Managing Emerging Risks?

Changes in workers’ compensation and regulatory action are keeping restaurant leaders on their toes. Having a risk management expert in your corner can help you avoid problems and control costs. Heffernan Insurance Brokers offers specialized risk management and insurance programs for hospitality businesses. Learn more.

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