Workers’ compensation coverage is required by most states as a way to ensure that employees get the medical care and wage replacement they need when injuries occur in the workplace. Traditional workers’ compensation providers generally require you to make a down payment of at least 25% of your annual premium, based on your estimated annual payroll. You’re also expected to periodically fill out time-consuming audit forms that can lead to expensive unexpected premium adjustments.
An alternative in some states is a Pay-as-You-Go workers’ compensation service. This eliminates the need to tie up a large amount of cash in a down payment. Instead, premiums are automatically calculated with each payroll, so you only pay the exact premium due. This also eliminates the need to fill out monthly and quarterly reports, saving you time and a potentially expensive surprise if your payroll was underestimated.
How Does Pay-as-You-Go Work?
After running payroll, your payroll information is securely sent to your insurance provider. Premiums are calculated based on each individual employee’s wages and pay types. An email is sent to you with your premium amounts, and a few days later the premiums are electronically debited to your account.
Benefits from Using Pay-As-You-Go
- Better cash management.Because a Pay-as-You-Go program eliminates the need to make the large down payment, less cash is tied up, allowing for better cash flow to meet current expenses.
- Greater accuracy.Pay-as-You-Go workers’ compensation bypasses the traditional and often faulty estimated payment method. With this service, your payments are determined by on actual data, your payroll amounts and information from the insurance company. This is especially helpful for companies where the payroll varies throughout the year due to seasonality, making it difficult to estimate.
- Time saved. For many employers, one of the most welcome benefits of the Pay-as-You-Go service is the reduced time commitment. By automatically calculating premiums based on actual payroll, there’s no longer a need to fill out periodic reports or undergo a potentially stressful year-end audit. You can use the time to keep your company moving forward rather than combing through the details of the previous year’s payroll.
- Lower costs. You can save money by not having to undergo year-end audits. That, plus better cash management, greater accuracy, and time saved all add up to an overall cost reduction.