You’ve probably heard of pay-as-you-go workers’ compensation insurance. It’s likely you’ve received a few emails, phone calls, or letters in the mail offering this as an alternative to the traditional workers’ comp you’ve purchased. Before you make the leap from your current coverage to pay-as-you-go, it’s important to understand what it is and what it isn’t.
Pay-As-You-Go Workers’ Comp
Pay-as-you-go workers’ compensation coverage is a way to pay for your workers’ comp coverage by bundling or combining it with your payroll. You work with a payroll or HR service, and they make sure your employees and your workers’ comp premiums are paid every pay period. You’ll be presented with a single bill to cover all the costs for that time period.
The pay-as-you-go method allows you to pay your workers' compensation premiums based on your actual payroll and your exposure risk instead of the budgeted payroll you believe will be accurate for the year. This helps eliminate surprises during your workers’ comp audit.
Traditional vs. Pay-As-You-Go
Traditional workers’ compensation and the pay-as-you-go method aren’t completely different insurance coverages, but they do have distinct differences you need to know about. Here’s how pay-as-you-go workers’ comp works:
- What you pay to the payroll service is your premium payment only. You still need to work with a state-approved insurance provider for your coverage.
- Your premium is based on the payroll generated during a pay cycle.
- Your premium is based on a rate per 100 of payroll per job classification.
- Pay-as-you-go coverage often requires a down payment so that a notice of cancellation can be covered if your provider cancels your coverage.
- This method is still auditable because all workers’ comp insurance is auditable.
The only difference between pay-as-you-go and traditional workers’ comp insurance is that with traditional you get to work directly with your insurance agent for your coverage. The insurance company you choose may offer a similar payment structure. The other difference is that, as you know, a traditional premium is based on a projection of your annual payroll instead of the actual amount.
The Pros and Cons of Pay-As-You-Go Workers’ Comp
Ultimately, deciding which type of workers’ compensation to select comes down to what will work best for your company. Here are a few pros and cons to this method so you can make a good choice for yourself.
- Pay-as-you-go eases your cash flow. Instead of one big payment, you’ll pay a little over time.
- Your audit will be easier and more accurate. As long as the payment and reporting of your workers’ comp premiums are accurate, you shouldn’t have any large premium payments at the end of your audit.
- You’ll have accurate information and payments because the amount you pay is based on your actual payroll.
- You’re not able to budget for your workers comp. It is what it is each pay cycle.
- You may have a lack of control. You might not always see the true cost of your workers’ comp as it will be bundled in with the rest of your payroll.
- Not all insurance companies allow a pay-as-you-go method so your options may be limited and you may not be getting the best rates.
Ultimately, pay-as-you-go workers’ comp has to be a decision that works for your business needs. Insurance providers are offering more solutions and flexibility for their programs, though, so you may simply need to contact your provider to find out what they can offer. If you’re not sure what to do about your workers’ comp coverage, contact us at Charlotte Insurance. We’ll help you walk through your options to make the best decision possible.