Pay-As-You-Go Workers' Compensation: Right for You?
Most employers must carry workers' compensation insurance. Employers can typically purchase the insurance policy through either the state or a private insurance company.
Under a traditional policy, premiums are based on your estimated payroll for the upcoming policy year. This anticipated premium can be paid as a lump sum amount or in installments. When the policy year ends, the insurance carrier compares your actual payrolls with the original estimate. This comparison could result in you owing the insurance company or the insurance company owing you. Both of those outcomes can be avoided by estimating correctly.
But payroll isn't always predictable. For example, if you hire or terminate employees unexpectedly, the estimate will not reflect that change, and an adjustment will need to be made at the end of the policy year.
Pay-as-you-go workers' compensation is designed to eliminate those types of adjustments.
A simple, accurate alternative
With pay-as-you-go, premium payments are made at the end of each payroll cycle. Because your premiums are based on the actual payroll cycle, there's no need for adjustments at the end of the policy year. There are no estimates and no cash flow surprises. You simply pay what you owe for each payroll cycle.
No lump sum payments
With a traditional policy, you must either come up with the entire premium cost upfront or put down a hefty deposit and then make monthly installments. This can put a squeeze on your budget.
Pay-as-you-go, on the other hand, requires little money down and allows you to spread out your payments over the course of the policy year.
All workers' compensation policies are auditable, no matter the billing type. These audits are performed by the insurance carrier at the end of the year.
During the audit for a traditional policy, the insurance carrier determines the actual premium for the policy period versus the estimated amount. This is often a tedious process that requires you to spend time tracking down payroll data for the entire year and responding to various requests from the insurance company.
The audit for a pay-as-you-go policy requires little to no involvement from the employer. Since the policy is based on real-time payroll wages, the insurance carrier already has the information it needs.
Available in most states
Pay-as-you-go workers' compensation is available in virtually all locations. (Note, however, that Ohio, Wyoming, North Dakota and Washington all require employers to purchase workers' compensation insurance directly from the state, limiting your options.)
Although pay-as-you-go workers' compensation is increasing in popularity, it's still a fairly new trend. Let us know if you're interested, and we'll see how this could work in your situation.