It remains to be seen how California’s $20-an-hour minimum wage for fast-food workers will affect the workers compensation industry, as the nearly 25% hike could drive up premiums in the near term due to higher payrolls but also could lead to more automation, experts say.

Impacts to workers compensation insurers could be minimal to the “extent the fast-food entities don’t make other changes to offset the increases in their overall payroll costs,” a spokesman for the California Workers Compensation Institute wrote in an email. He said that replacing employees through automation, such as kiosks for ordering or robotic food preparation, reducing hours, eliminating overtime shifts and delivery, or closing restaurants would affect insurers.

“We have already heard that some of this is occurring, but we will have to wait to see the extent to which such changes impact overall payroll and premium within this sector,” he wrote of the industry.

Restaurant work has higher-than-average injury rates due to the nature of the work — with abrasions, burns, slips, trips and falls among the top risks — and the typically younger age of the workers, who are statistically more likely to be injured.

The National Council on Compensation Insurance, which does not set rates for California but has been monitoring minimum wage increases across 22 states this year alone, said increases typically even out for insurers.

“The idea with our exposure base being payroll is that you don't have to change rates as payroll goes up because the benefits go up, and payroll goes hand in hand. They should offset each other,” said Kirk Bitu, a Boca Raton, Florida-based actuary with NCCI.

However, the large increases, such as that which went into effect in California on April 1, are “something that’s going to be worth watching out for,” said Stephen Cooper, Hartford, Connecticut-based executive director and senior economist at NCCI, who noted that small minimum wage increases going back to the 1990s had minimal effects on comp insurance premium.

“Things could definitely be different this time around because of artificial intelligence, because of automation, because of a lot of these impacts, especially at the fast-food level,” he said.

“We’re dealing with an environment now with high inflation, and consumer budgets are starting to feel pinched … and there’s concern as to how much (consumers are) actually going to be able to spend on certain types of goods. You can’t just raise prices to offset” the increases in payroll.

A spokeswoman with the California Restaurant Association said many fast-food restaurants were already moving toward automation following the pandemic, and that the increase in payroll “gives them another reason to continue to move in that direction.”