The premium formula
Premium is payroll by class code, times the rate for that code, times the experience modifier, plus or minus scheduled credits and debits. Every one of those terms is auditable. Shopping carriers changes the rate; correcting classification and the modifier changes the base the rate applies to, which is usually the larger number.
Because premium is estimated on projected payroll and trued up at audit, an operator that has closed units, shifted to more salaried management, or reclassified roles is often carrying an estimate that no longer matches the business.
Classification errors in restaurants
Restaurant payroll spans several class codes, and clerical, delivery, and management payroll often carry materially different rates than kitchen and service staff. When all payroll defaults to a single restaurant code, the higher-rated code prices the whole book. Delivery exposure in particular is frequently misassigned, in both directions.
Overtime is another common error: in most jurisdictions only the straight-time portion of overtime wages is included in premium basis. Payroll reported gross overpays by the premium portion, and that overpayment is recoverable at audit.
Experience modifier accuracy
The modifier is computed from three years of loss history against expected losses for the payroll and class mix. It is built from data filed by carriers, and that data is often stale — reserves left open on closed claims, subrogated recoveries not credited, claims filed under the wrong entity after an acquisition. A worksheet review before the rating date is the highest-return hour in the category.
Corrections applied before the rating effective date change the whole policy year. Applied after, they usually do not.
Structure and claims
Above a certain payroll, deductible and retention structure becomes a real decision: a large-deductible or captive program trades premium for retained loss and requires actual claims discipline to pay off. Return-to-work programs, prompt reporting, and a designated medical network compress claim severity, which is what feeds the modifier three years forward.
The sequence matters. Fix classification and the modifier first, then decide on structure, then shop the market. Shopping first prices the errors into every quote you receive.
Takeaways
Premium = payroll by class code x rate x experience mod — audit the inputs, not just the rate.
Only straight-time overtime belongs in premium basis; gross reporting overpays.
Review the mod worksheet before the rating date; corrections after it rarely apply.
Related reading
Occupancy and insurance: the two lines nobody reopensRestaurant labor cost percentage: the burden most operators leave outTurnover is a cost line: benefits that pay for themselves in retention