“There are people that just ignore their audit. Which is always a terrible idea.”

In episode #99 of Mission to Grow, the Asure podcast that serves as small business owners’ guide to cash, compliance and the War for Talent, VP of Partner Strategy at E-COMP, Robert Campbell joins host Mike Vannoy to talk about why pay as you go workers comp is a crucial tool for managing your cash flow. Robert also shares the risks of mis classification, the need to automate payments, and why you should always require contractors to carry their own workers comp.

• Business owners need to understand that pay as you go workers comp is ultimately a cash management tool. Any small business needs to be focused on cash management, and pay as you go workers comp lets you hold onto your cash for longer.
• Paying your taxes a year in advance would cause undue financial strain, and paying your workers comp in advance has the same disadvantages. By paying as you go, you pay more accurately, and keep your assets liquid.
• Managing different workers comp class codes requires careful documentation. If during an audit, you can’t document the split to an insurance company’s satisfaction, you will pay the highest rated code for everyone.
• While your state may not require 1099 workers to carry their own workers comp insurance, you should still require it as a policy. Otherwise you open yourself to issues and possible misclassification fees.
• Due to some rounding in the pay as you go process, there can still be a need to perform an audit. As you may estimate expected payroll wages, your actual number for wages may differ, resulting in the need to audit.
• While you can report pay as you go workers comp manually, having an automatic integration saves both time and effort. Automation sends data directly to your insurance provider, and significantly reduces the risk of error.
• When you are making manual payments and notifications are getting mailed, it can be easy to miss a bill or audit notification. By keeping things digital, you protect yourself from missing important notifications and having your policy canceled.

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Read the Transcript:

Robert Campbell:
There are people that just ignore their audit, which is always a terrible idea. If you ignore the audit, the insurance company is simply going to bill you for twice the estimated annual premium. A lot of people don’t realize this, so the bill shows up. I can’t tell you how many people this happens to. The bill shows up, they just assume it’s their workers’ comp bill, they pay it and they don’t probably have

Mike Vannoy:
To. Welcome to Mission to Grow the Small Business Guide to Cash Compliance and the War for Talent. I’m your host, Mike Vannoy. Each week we’ll bring you experts in accounting, finance, human resources, benefits, employment law and more. You’ll learn ways to access capital through creative financing and tax strategies. Tactical information You need to stay compliant with ever-changing employment laws and people strategies you need to win. The War for Talent Mission to Grow is sponsored by Asure. Asure helps more than 100,000 businesses get access to capital, stay compliant and develop the talent they need to grow. Enjoy the show, pay as you go, Workers’ Compensation. Hi, I am Mike Vannoy, host of Mission to Grow, and this is a topic that I think most small business owners know about. You can’t be in business and not know what workers’ comp is, but I think so many business owners don’t realize there’s a better way to pay, there’s a better way to manage, there’s a better way to mitigate your risk and it’s probably super simple, but there’s a lot of nuance to it. It’s the pay as you go method for workers’ comp and there’s a few different ways you can accomplish it. So got a great guest today to unpack this topic. He’s been in the small business payroll and employer insurance game for 14 years. He’s a workers’ comp expert and for the past four years he’s helped pioneer the best practices and pay as you go workers’ comp programs. Welcome to show the VP of partner strategy at e-com, Robert Campbell.

Robert Campbell:
Thanks Mike. Appreciate it.

Mike Vannoy:
Yeah. Hey Robert, right at the top. What is the number one thing that small businesses need to understand about pay as you go Workers’ comp?

Robert Campbell:
Yeah, I mean most importantly it’s a cash management tool. Cash management is critical for a small business. I say it all the time, profitable or not, there’s profit and there’s liquidity and pay as you go. Workers’ comp really helps to manage that liquidity piece and keep cash in your bank account longer because it’s better there than in the insurance company’s hands.

Mike Vannoy:
So I work for Asure and I work for a big company today. I’m also involved in small businesses. I’ve been in and out of corporate America, in and out of small businesses my whole life. Grew up in an entrepreneurial small business home. There are a few things that I dislike more than having to deal with a year end, which is really not even a year end. It’s a mid-year annual audit of workers’ comp depending on who the carrier is, who the underwriter is, do they do their audits in-House, do they outsource? What information do they need? It seems to be different every single time and it is just a gigantic pain in the butt and ultimately can, I shouldn’t say ultimately, but frequently leads to some really big surprises. What do you see wrong with the inherent model for how workers’ comp has always, I guess been paid, how the premiums have been paid by the employers?

Robert Campbell:
I mean, if I came to you, Mike and said, it’s April, it’s May, so whatever time of year your policy or renews or if we put it in terms of taxes, if I came to you and said, Mike, I need you to prepay all of your payroll taxes for the next 12 months, you would look at me like I was out of my mind. Right? Everybody knows that that makes zero sense. You want to delay your tax payments as much as possible or at least pay them as they’re accrued. And that’s what traditional workers’ comp is. Workers’ comp is ultimately a payroll tax. The premiums that a business pays are a percentage of the payroll wages. I say that it’s the most complex payroll tax that a business ever has to manage because it’s competitive. It’s not the same for all businesses. It’s not even the same for all employees within the same business. And so it’s a lot to manage, but with traditional workers’ comp, you have to predict the future. You have to give the insurance company a payroll estimate for the next 12 months. You pay a large upfront deposit, you maybe have to pay that policy in full. Either way it’s a prepayment of that workers’ compensation tax and then

Mike Vannoy:
A prepayment of the estimate of that tax.

Robert Campbell:
A prepayment of the estimate of that tax. Exactly. And then 12 months later, right? So you’re right, it’s not on a calendar year or a fiscal year, 12 months from when that policy is issued, the insurance company is going to do an audit and there is various degrees of that audit. Some of them are very, very complex, some of ’em are very intrusive. Sometimes the insurance company will want to send an auditor to your business and sit down and meet with you and review your records, and they’re looking for all sorts of stuff. They want to confirm the operation. They want to see if they can uncover cash wages. They want to make sure that at a minimum they’re getting paid for the risk that they’re taking, which is completely understandable that they want to get paid for the risk that they’re taking, but it’s intrusive. It’s cumbersome. And then the insurance company determines do they owe you a refund because your estimate was too high 12 months ago? Do you owe a balance because your estimate was too low? Did you disclose all of your 10 90 nines? Did you get certificates of workers’ comp insurance from those 10 90 nines? I’ve clients owe tens of thousands of dollars of premium for all sorts of reasons, growth missing 10 90 nines, not keeping certificates on file, not keeping appropriate timekeeping records.

Mike Vannoy:
You know what we’re going to talk, Robert, we’re going to talk about pay as you go. Obviously that’s the main theme today, but what are the big for those people not on a pay as you go system and after you watch today, you’re probably going to want to make a switch, but if you’re on the traditional workers’ comp payment kind of a plan here, what are the big gotchas that you do see? You mentioned a couple, but unpack a little more detail there if you could.

Robert Campbell:
As far as at the audit time period or just throughout the policy?

Mike Vannoy:
Yeah, you wrote the check for whatever you had to write the check for, whether it’s upfront or installment or per payroll, whatever. And now it’s the audit. It’s the true up at the end of the year, right? So what are the areas that you see as big reasons for misses either on the overage or underage side?

Robert Campbell:
Yeah, I mean, so just inherently the future of your business is incredibly difficult and I think the smaller the business, the harder it is. Certain industries have seasonal components to it, so maybe you’re in the entertainment business, maybe you’re in the restaurant business, ice cream straps, golf courses, there’s so many businesses that have seasonality that goes to it. So inherently you got to try to predict the future, which is nearly impossible. Your first gotcha is, was that accurate? Think about a new business, new business startup, incredibly difficult for them to predict the next 12 months, how many employees will they have? What’s the growth going to look like? Is the restaurant going to boom or is it going to take a little while to get off the crop? So that’s the first gotcha. The second gotcha is employee classifications, and that matches with timekeeping records and your payroll records.
So if you’re in a business that has multiple workers’ compensation class codes, so a lot of very common ones, you have your clerical employees, you have your sales employees. If we say, let’s say you’re a janitorial business, you got clerical, you got sales, and then you got your hands on actual laborers, you got to track those hours separately, trap those payroll records separately. And you may have a mixture. You may have employees that work in a couple of different class codes. If at audit, you can’t document that to the insurance company’s satisfaction. They default everybody to the highest rated code, whatever’s most expensive, that’s where they’re going to put you in. So it’s very important that you keep detailed records that you classify appropriately, pay as you go really helps with that because you communicate that on a fair pay period basis, you’ve then got your records for your 10 90 nines, right? I mean, we advise minimize your 10 99 usage as much as possible, right? Leverage W2 employees as much as possible.

Mike Vannoy:
And why is that?

Robert Campbell:
Because the insurance company, a lot of people are like, well, they’re 10 90 nines. I’m not responsible for their workers’ comp or especially, well, my 10 99 is the sole proprietor, and they’re not required to carry workers’ comp because they don’t have any employees. Well, huge misnomer. So many problems arise from those statements that are not correct. The insurance company is potentially on the hook for injuries of 10 90 nines because the thing about 10 90 nines is everybody’s very happy being at 10 99 until the moment they’re not. And if you go back to Covid and people that were independent contractors that in the initial stage of his stages didn’t get the entitlement benefits, didn’t get unemployment, didn’t get all of those things, and they’re like, whoa, whoa, whoa. I’ve been working for this business for the last three years. What do you mean I don’t get unemployment insurance?

Mike Vannoy:
And

Robert Campbell:
They’ll challenge their status

Mike Vannoy:
Classification exempt. This is a matter of law. We’ve done lots of shows on this exact topic, but I don’t think of all the times we’ve ever talked about it. We’ve never, so I’ve had attorneys on, I’ve got our own internal HR experts. It’s probably classification is one of the most common areas that employers get in trouble with Department of Labor, whether state or fed because for a handful of reasons, go watch one of those shows and invite you to, I am really curious more about the 10 99 status though.

Robert Campbell:
Yeah. Because honestly, a workplace injury is one of those things that blows the top off Pandora’s box. When you have independent contractors, and again, especially if you have a sole proprietor that doesn’t have to carry workers’ comp on themselves by law, a business owner should steal by contract. Say, Hey, you can only be an independent contractor for me if you have your own workers’ compensation policy. Because what happens is an employee gets injured and they can’t pay those expenses. Medical bills start rolling in hospital bills. They can no longer pay their expenses because they don’t have income coming in. And at that point, push comes to shove, your feet are against the fire. And that’s where sometimes attorneys do get involved. I mean, you can’t drive very far without seeing were you hurt at work billboard or a TV commercial or a radio ad, and when somebody was hurt and now they can’t pay those expenses and they talk to an attorney, the attorney says, you should have been a W2 employee.
They dictated your work. They told you the hours, they gave you deadlines. We are going to go through all of those classification things that I’m sure you’ve talked about because their goal is going to be to get the workers’ comp insurance provider to pay all those medical expenses, all of those lost wages. And then at that point, it doesn’t stop there right Now, once they go through that process and the courts and the insurance or whoever makes that determination says, yeah, you’re right, you should have been a W2 employee. Now you got to deal with all the other problems that come with that, not just the workers’ compensation.

Mike Vannoy:
Robert, my mind’s got a million miles an hour on this topic. I really haven’t even thought much about this before. I think a lot of people, the payroll business, we think about workers’ comp, especially in areas that are more prone to injury. So you think construction, you think manufacturing where, because we think rates, right? How do you mitigate rates in the higher risk job classifications? But one of the areas that I just know is most, I’d say abused is the wrong word because I don’t think employers abuse people on purpose, but they commonly misclassify employees.
It’s not even technically not even employed. They’ll say, oh, I’m just going to make that person a 10 99. They want to do it. They want their own going to, right? But unless they have the right exemptions, this isn’t just higher risk jobs. This could be a purely administrative job where it’s maybe data entry. And if someone gets carpal tunnel because they’re at a keyboard all day long, carpal tunnel, we’re in workers’ comp land all of a sudden, and you could expose yourself way beyond claims and rate issues with workers’ comp. All of a sudden now you’re in a DOL audit for a worker classification.

Robert Campbell:
I mean, sometimes this stuff happens accidentally. Meaning when you go to the doctor with an injury, what’s one of the first questions that they ask you? Did this happen at work or did it happen in a car? Because when it did, that medical provider knows that a deductible doesn’t apply. A co-insurance doesn’t apply. They don’t have to rely on you to make payment. And so that casual question of did this happen at work and that injured person says, yes, it happened at work. Okay, yeah, who’s your employer? And they’re just kind of providing information casually not even thinking what the ramifications of this are. And then the medical provider submits that claim to the insurance company and that opens up the claim, right? And at that point, the insurance company’s been notified of an incident. They have to get involved, they have to investigate. They’re probably going to try to deny it, but the light bulbs start going off of, well, yeah, I mean this did happen at work and questions start getting asked like, okay, how are you paid? Is this the only person you work for? What’s the nature of business? And do you do the exact same thing as the nature of business? And you’re right, that’s where the DUL audit gets in and it gets messy.

Mike Vannoy:
All right, so I went down that rabbit hole pretty deep, but that’s a big one I haven’t thought of before that you’ve seen. So where do people get in trouble when it comes to the audit? One is not having workers’ comp coverage or ensuring on a 10 99 employee. It’s not an employee legally, it’s not an employee, but a contractor 10 99 contractor or not ensuring that they have their own workers’ comp because if they’re doing a job for you on the job site, you could still be liable. So that’s place number one. What would be the other big gotchas where employers get surprised at audit time?

Robert Campbell:
Yeah, so we talked about estimates, right? Just having an incorrect estimate. We talked about having appropriate records, be it 10 99 certificates of insurance or just literally what are the operations that an individual employee is doing and if they’re working in multiple classifications, appropriately tracking when they’re working in different classifications so you don’t get defaulted to the highest rated class code. There are people that just ignore their audit, which is always a terrible idea. And what I’ll say is nobody reads their policy. I’m an insurance nerd. I read this stuff, I read this stuff long ago even before this, and there’s a description of what happens if you ignore your audit. So if you ignore the audit, the insurance company is simply going to bill you for twice the estimated annual premium. So a lot of people don’t realize this, so the bill shows up. I can’t tell you how many people this happens to. The bill shows up, they just assume it’s their workers’ comp bill, they pay it and they don’t probably have to, right? They just their audit, which honestly brings up another really good point of people hear audit and they automatically assume negative. And don’t get me wrong, I a hundred percent understand the negative connotation. However, the audit very often also benefits the policy holder and it’s an opportunity for them to also say, well, no, this was a mistake. This was wrong. No, this employee should go into this classification.
The agent that wrote the policy, I told ’em a million dollars in wages, but they were supposed to put $200,000 into this 88 10 clerical number, which is a fraction of the cost. So the audit is also the opportunity for the employer to keep the insurance company honest and make sure that which the insurance company wants, they just want even, right? They’re math, they’re mathematicians. They just want the numbers to make sense. And so everybody should make sure that they also complete their audit. The downside of the audit of that underestimating wages, the balances is due, is, and we opened up talking about the benefit of pay as you go really being a liquidity management tool. What happens when you owe a balance at audit is in a very short window of time, usually this occurs within a 45 day window. Your policy comes up for renewal.
So let’s say we’re in April right now, let’s say May 1st, your policy comes up for renewal. The insurance company in April is going to bill you for that down payment. So every year you make a down payment, at least they may even just bill you in full for the policy. So you’re going to pay that in April or anytime up to May 1st policy ends, May 1st, two weeks later your audit shows up and then you got to complete your audit. If that also results in a balance in that 45 day window, you just prepaid your policy for the upcoming year and you paid off the balance of your policy for the previous year, those numbers can easily be thousands and thousands of dollars from a liquidity standpoint, you could be very profitable, things would be going well, but if all of a sudden you don’t have that cash on hand or it just trying to make, you’re buy a new piece of machinery, you’re trying to update your building, you want to make another hire, something that you want to use that money to invest in your business, and now you’re sending it to the insurance company for last year’s policies and next year’s policy, business owners will pay that balance off with credit cards.
Now you’re adding interest. Insurance agents will use premium financing, which is the same idea. Now you’re adding interest on top of that. And now by adding that interest, you increased your cost of workers’ compensation. And that’s not an investment in your business, it’s just a compliance cost. It’s something you have to have. So you want to minimize that cost as much as you can.

Mike Vannoy:
Robert, any other big gotchas that we should talk about before we start? Let’s define pay you go and whatnot, and we get into that.

Robert Campbell:
No, I mean those are the ones we can look at seasonal businesses and just, it’s not as much of a gotcha as if you look at a contractor and maybe they’re a landscaper. I’m in the northeast, so landscapers got a good three, four months where they’re slower or have no revenues coming in if they don’t do snowplowing, one of those gotchas is on a traditional policy, if they put you on a 12 monthly payment, you’re still paying premiums in months where you don’t have revenue coming in. So same thing from that liquidity standpoint, and it just turns into a gotcha.

Mike Vannoy:
I’ll say maybe the last thing from my experience is in just being involved in a handful of businesses over the years, sometimes it’s the insurance company themselves. It’s rather straightforward. I’ve had other agencies, insurance companies, not agencies, that it seems like they outsource it to a different auditor every year. And I literally remember thinking, ignoring people, calling, emailing. I didn’t recognize them. It very much seemed like a scam. And these were big household name insurance companies that they outsource and and the audit from the same insurance company from one year to the next, the auditor was looking for different documentation, different reports. I’d say it was just a gigantic frustration. It’s not even that it was hard. It was just a painful process to go through. It was an unpleasant process to go through.

Robert Campbell:
I mean, so people will very often and rightfully so, will commodity shop workers’ compensation. There’s not a big difference in the coverage. There’s really no difference in the coverage that is provided. Were you injured at work? Do you have an illness that was caused at work and your expenses are covered, right? It’s highly regulated.

Mike Vannoy:
Yeah, I was going to say this predates the Affordable Care Act. This is highly regulated. It’s defined by law, what it covers, what it doesn’t. So it kind of definition it is a bit of a commodity, right?

Robert Campbell:
So it is, right? But that service people will forget the level of service, the brand, the insurance company that they’re purchasing from, and you hit it right on the head. One of those really big differences are who handles the audit and how is it handled? Some insurance companies will outsource the audits to third parties. They do it obviously for a lot of reasons. A lot of ’em are cost saving measures, but the insurance company that does it internally with their employees generally have a little bit of a better bedside manner. Those auditors are paying a little bit closer attention to the client’s experience in that audit. Whereas when the insurance company outsources it to a third party, they have one goal in mind, which is complete the audit. And depending on how the contract is, they may only get paid if the audit gets completed. So they’re a little bit more aggressive, they may be more aggressive at looking for premium. And you’re right, it’s inconsistent at that point because it could be j and JX, Y, Z auditor this year and a BC auditor next year, and they have a different process and a different contact and a different approach.
And if you have a Hartford or an AmTrust or a Travelers, somebody like that, when those insurance companies are calling and reaching out to you when somebody from some random auditor is calling you, you’re right. I mean, I think as people these days we’re very conscious, is this a scam auditor for what? You’re not my insurance company.

Mike Vannoy:
Yeah, right. It’s exactly how I it reacted. Alright, so let’s maybe go into define what I think is rather self-evident by the name, but I think there’s lots of nuance and different flavors of pay as you go. So Robert, let’s just back up here. Define what is pay as you go workers’ comp, how does it work? What are the different flavors that folks might see this?

Robert Campbell:
Yeah, so we talked about just a level set. We talked about traditional workers’ comp estimate, your payroll insurance company bills. You on that estimate, you got a large upfront deposit, you got equal payments on some frequency, monthly, quarterly, semi-annual, whatever it may be. And then you got a cumbersome audit at the end of the year because everything was done on estimates. When you go to pay as you go workers’ comp, and there is a couple of flavors that we’ll talk, there’s a couple of ways to accomplish this, but typically it’s no down payment. So you will give an estimate so you can get a quote. You want to project what your workers’ comp cost is going to be, but you don’t pay on that cost so there’s no money down. The premiums that you pay are paid each pay period based on actual payroll wages. So you pay your workers’ comp premium the same way you pay your payroll taxes.
That continues pay period after pay period for the life of the policy, the 12 month term. And at the end of that term, the audit is a lot different because the insurance company got data throughout the policy term that they build upon. And more of those audits will be what we call streamlined. So it may be just an email audit, a telephone audit. They may just say, Hey, upload your nine 40 ones. So we have a tax document that confirms the wages that you gave to us, match the wages that you filed when you filed your payroll taxes. There should be little or no balance due. You might have a little bit just based on grounding, right? But we’re talking less than 1% difference, plus or minus nothing that’s going to put you in a liquidity issue. And then that just continues in perpetuity. So you have a renewal, they give you your new policy, your new rates, but it again comes with no down payment and you just keep paying your premium each pay period. So that matches the fluctuations in your business. So if you’re that restaurant, if you’re that golf course, if you’re that contractor that has some seasonality to your business, you pay your workers’ comp premiums when business is booming and you’ve got more employees, staff, you’ve got more hours doing work, more payroll being paid, more revenue coming in, you’re paying your workers’ comp premium. When you get to dips in your business, slow seasons you’re paying less. So now your cost of workers’ compensation is matching your cost or your revenue flow

Mike Vannoy:
The same as you would for any other taxes. You got a big payroll, you got lots of employees, lots of hours worked. Then your FICA is this, if it’s a down season for you, then your FICA is that. So why not have workers’ copy the same? I’m curious how is it possible to have anything for discrepancy if you’re truly paying as you go, the same as you do taxes, how could there be any discrepancy and why is there a need to do audit at all?

Robert Campbell:
So you do have some rounding that takes place. There are some discounts that build up with your workers’ compensation premium as you pay more, right? So if you estimated, for example, 250,000 in payroll wages, you actually ended up running 325 a thousand in payroll wages. When you crossed that maybe $300,000 threshold, there might’ve been a half a percent credit that gets applied to your policy. Vice versa, if you estimated 3 25, you ran two 50, you might not have actually qualified for the half a percent credit that was applied to you. So we’re talking incidental differences there and you’re just very minor to us.
How that’s accomplished though is very different. I mean, how is from the payroll reporting standpoint, we find a lot of clients that are doing pay as you go, but they’re doing it manually. So what I mean is most insurance companies offer what they call self-reporting, and it’s pay as you go in finger quotes. Sometimes it still comes with an upfront deposit, so it’s not quite as good and you get extra work. So each pay period, the business owner or somebody on staff, or maybe they hire their CPA or somebody to do it for them has to log into a portal at the insurance company and key in all the data. They do that each pay period and then the insurance company, AACH H is the premium. And you’ve got kind of a manual pay as you go process. So a lot of the benefits, but you get some work to make that happen as well.
There’s also integrated pay as you go, right? True payroll integration, that’s what Asure offers. That’s what e-com offers. And we have a technology integration that shares the payroll data. So on an automated basis when one of our clients runs payroll, we get the payroll through our system integration. We aach h the premium with that, we send the premium and the payroll data to the insurance company. Nobody’s doing anything manual. They don’t have to log in, they don’t have to report that data is perfect because there’s no data entry errors when we file those audits on behalf of the client, what we filed with a carrier matches the nine 40 ones because it came right through our technology marriage. And so that’s really the best way to do it. At least it’s the lowest lift because let’s face it, if you’re not in the insurance business, you don’t make money managing your worker’s comp policy. So you just really want that to be as simplified as possible so you can focus your efforts on revenue generating activities.

Mike Vannoy:
Got it, got it. And so both are pay as you go, but if you have to manually go into someone’s portal key in a bunch of data or pay someone to key in a bunch of data, that will probably be pretty close, but maybe not as perfect. You’re just taking the same amount of work that you would’ve done during an audit and spread out through the year. You actually, you might be giving yourself a favor on cashflow, but actually performing more work, right? Because doing that every pay period for a year, that could actually, I could see how that might end up being more hours worth of work in aggregate

Robert Campbell:
Without a doubt. So you hit it right on the head, you get the benefit of the cash management, but you get the downside of work and probably more work cumulatively than just completing your audit.

Mike Vannoy:
Yeah. Okay. So I don’t want to belabor a conversation and have this thank you Captain obvious that’s like, okay, if I’m integrated with payroll and every pay period I’m sending to the carrier, in this case we partnered with you guys. And so the workers’ comp premiums are auto deducted as part of payroll. That sounds super obvious. And whether you used Asure an e-com or a different payroll company and somebody else, that should be your goal. What are some of the maybe not so obvious benefits? Cashflow is obviously one of them. What about risk management? Are there other good reasons if cash management wasn’t enough in a lower burden at time of audit?

Robert Campbell:
Well, so you can also get some pricing considerations. If you look at the insurance company, the insurance company is taking two risks when they write a workers’ comp policy. One of them is the risk of injury. And honestly, the actuaries feel pretty darn confident in predicting the risk of injury with the massive amounts of data that they

Mike Vannoy:
Have. Sure.

Robert Campbell:
So the actuaries are very comfortable predicting the risk of injury. They work that into the workers’ comp rate by the code. It works phenomenally. The second risk is the risk of payment because inevitably when a business owner gets through the entire policy term, they complete their audit, they owe some money, some of that money just never gets paid. The buyer, they can’t pay it. They switch insurance companies, they ignore it. But what comes, the insurance company is going to go through normal collection processes just with any other debt. But some of that is bad debt. It’s extra effort for them to go get it. And so that’s a risk that’s a little bit harder to narrow down. And it’s a drain on resources with pay as you go. The insurance companies don’t have that problem, or at least they don’t have that problem nearly as often, in fact.
So we’ve worked with some of our insurance companies to where certain premium thresholds in fact won’t even experience an audit. So we automate the data, we send it to ’em each pay period. And on those smaller policies, and I mean small, some of ’em go as high as five or $10,000 a premium. The insurance company says you’re on pay as you go. You have an integration with e-com. They’re getting data directly from the payroll company. Let’s not waste each other’s time on this audit. We’ll just automate it and keep it going. So that saves them resources.

Mike Vannoy:
So that’s interesting. So I think about that because indirectly you’re lowering the employer’s risk, but one of the ways you’re doing that is by lowering the insurer’s risk.

Robert Campbell:
Correct.

Mike Vannoy:
And then they can theoretically pass that savings along to you.

Robert Campbell:
Exactly. So at the end of the year, they don’t have nearly as much bad debt. And so as we price those things out, as we shop those things out, it’s easier for them to get more aggressive for us. So as we push them, the insurance company will get more aggressive. It also helps them from an underwriting standpoint, if there’s a client that they’re really on the fence of, do we want to offer ’em a policy? Do we not want to offer ’em a policy? Maybe there’s some things in their operations that demonstrate a little bit higher risk. Maybe they’ve had some claims in the past, the insurance company is more likely to issue a quote and issue a policy for the payment method of pay as you go, because they know that they’re not also going to have the risk of payment at the end of the policy term. So we can get aggressive with pricing. We can get underwriting favorability, new businesses.
We get a lot of benefits to writing new businesses. Whereas lots of times, the insurance company, the insurance industry as a whole says, go to a state fund, get yourself one year of coverage under your belt and then come back and we’ll write you, because they want to see how’s your risk management, but also what is your actual payroll going to be? What’s your actual growth going to look like when it’s on pay as you go, they’re like, Hey, we’re going to know what your growth is every repay period, and it’s going to be all covered for in real time.

Mike Vannoy:
Yeah, yeah. Safe to assume that you’re not writing checks for these premiums as they go. It’s just treated as a payroll deduction

Robert Campbell:
Essentially. Yeah, absolutely. So when a client signs up with us and integrates with their payroll provider, we a CH, the premium automatically each pay period, we a CH that directly to the insurance company. Nobody’s taken any manual time to review bills and make payments.

Mike Vannoy:
And so there’s yet another administrative savings. So if you’re a small employer, you get 5, 10, 20 employees. You might not be spending tons of time every single month, but it’s something that you would’ve to do either every pay period or every month or every quarter, depending on how your policy is set up. So one more thing and any other less obvious advantages of why employers should be thinking about pay as you go.

Robert Campbell:
So it’s a risk reducer. So you just talked about that need to manually make payment, right? Inevitably stuff gets missed, mail gets lost, and stuff gets dropped off at the counter at your business, and an employee doesn’t get it to you. They don’t know what to do with it. It’s sits somewhere else. Unintentionally. Having your workers’ comp policy get canceled is potentially a disaster. Just the compliance portion of it. I mean, we talk to clients on a regular basis that accidentally had their policy canceled. They didn’t get the bill, they didn’t realize they had an audit balance. They weren’t good at paying attention to their mail. They traveled outside the country. I hear that one very often. I was outside of the country. I didn’t know this was happening. And so they don’t make that payment. The insurance company cancels that policy. And then you’ve got some real risk, really, really, really big risk.
So one, you have the compliance component. Every single state or across the country has some sort of penalty that they apply for workers’ comp, non-compliance. I think the highest is $2,000 for every 10 days without coverage. Some of the lowest are two times what the normal premium would’ve been. And that’s if nobody gets injured. If you don’t have workers’ comp in place and somebody gets injured or they need benefits of the policy and then you don’t have coverage, you’ve got major compliance issues, you are going to pay a ton of fines and you become financially responsible for all of those expenses. You become your business becomes the insurance company. You pay the medical expenses, you pay the lost wages. But wait, there’s more. Every single state has what’s called the uninsured workers’ comp fund. So the employee will get those paid by the state’s uninsured workers’ comp fund and the uninsured workers’ comp fund. The state is going to come after you. So it’s not like you can just be like, well, hey, I’m not going to pay. You can’t bleed a rock. I get that one every once in a while. And so what’s the employee going to do? No, the employee won’t suffer, right? You pay some taxes on your workers’ comp policy that goes to every state’s uninsured worker’s comp fund. The employee’s going to get their expenses paid for, and then the state is coming after you and they’re good at getting their money.

Mike Vannoy:
And I’m assuming, so there are some things that even a bankruptcy couldn’t protect you from there. It’s like trust. Trust monies like taxes. You could file bankruptcy and not have to pay a vendor, but you don’t file bankruptcy and escape the taxes. Yeah,

Robert Campbell:
Doubt it.

Mike Vannoy:
I’m assuming this would have that kind of teeth. So I’m guessing there’s not a lot of people watching and listening today thinking that that’s them, that I pay my taxes, I pay my workers’ comp. That’s some other guy. How often do you see that? Just sheerly good people happening by accident

Robert Campbell:
Regularly. And that’s the key, right? Everybody and I get it right. People tell me all the time, I would never do this. I would never do that. We talk about other insurances like employment, practice, liability. It applies to discrimination and harassment. And when I talk to good business owners, they’re good people. I love entrepreneurs. I love what I do because of those people, and I know you do as well. So good people that just make administrative mistakes, they miss a bill. An employee doesn’t give it to ’em. It’s somebody else’s responsibility, turnover, there’s so many valid reasons, but the reality is it happened and there’s consequences that come from it. I

Mike Vannoy:
Think that’s the big one. We really work hard on the show to try to give employers the benefit of the doubt. And I just imagine if I’m sitting on the other end, I’m watching listening, I’m like, as soon as you think this doesn’t apply to me, you kind of tune out. But I don’t think this industry is born from unscrupulous entrepreneurs trying to screw their employees over not paying their insurance premiums on purpose. It really is. And it’s not even born of ignorance. It’s like there’s probably nobody watching listening that didn’t know you have to have workers’ comp insurance in place. Maybe we should do a show on that sometime, Robert, maybe more definitional just on workers’ comp in general and why you have to have it and purpose and such. But for the most part, I think everybody knows it’s the administrative accident. Things literally do sometimes get lost in the mail. The mistakes happen. Any other considerations, Robert, that you think employers should be making and maybe need to understand about pay as you go? Workers’ comp.

Robert Campbell:
I mean, I think we took a pretty deep dive. Cash liquidity, lowering your risk management, everything that comes with it, it’s, it honestly is and continues to be the standard method of paying for workers’ compensation premiums.

Mike Vannoy:
You say standard. Do you have any data that would tell what percent of employers are not paying on a pay-as-you-go basis,

Robert Campbell:
And that’s a great question. So it’s actually still more than more are not paying for it on a pay you go basis, not when you look at workers’ comp as a whole large, sophisticated companies, they got not only people but departments to handle this stuff. And so when you look at the industry as a whole, when you look at the SMB space, whatever you define that as 50 employees are under a hundred employees are under two 50 and under anywhere in that window, that is where pay as you go dominance. So a third, it’s still about a third of all workers. Combination wide is on some form of pay as you go, whether it’s payroll integrated or self-reporting or some flavor that way. But when you’re in the small business space, it is much larger than that. That’s where it’s becoming the standard, and that’s where it continues to grow. And those are the businesses that need it the most, right? They need that liquidity. They need that compliance help. They need to make sure that nothing falls through the cracks because they wear a ton of hats.

Mike Vannoy:
So if you’re watching today and you’re on pay as you go through a payroll integration, you probably turn this off maybe about 15, 20 minutes ago. If you’re still with us at this point, it’s probably because either you’re not on pay as you go, and hopefully it sure as hell seems obvious that you should or you’re on pay as you go and you’re doing it manually and there’s probably a better, more effective way. So couldn’t possibly encourage, especially small businesses, small, medium sized businesses, that just isn’t a good reason not to. A lot of times things are a trade off. It’s like, okay, I’m going to have to spend money to then make money. You’re reducing your workload, reducing your risk saving time, and it nets out the exact same amount you’re going to pay in the end. No, because if you’re not, it’s being audited. You’re going to pay the exact same amount. You’re not paying more, you’re not paying less. That just simply saves you time and lowers your risk. Why wouldn’t you? Right.

Robert Campbell:
Honestly, actually, you do pay a little bit less. There’s the savings.

Mike Vannoy:
Yeah, right, right.

Robert Campbell:
But also, when you’re on a direct bill, the insurance company, look at your, next time you get a workers’ comp bill, look at the statement. Every insurance company’s billing you between seven and $20 to make that payment. So a lot of people don’t realize that, right? So they’ll talk about that, and I’m like, yeah, okay. You’re paying it monthly. It’s costing you 240 bucks a year.

Mike Vannoy:
Yeah, so I was wrong. It is not just a lowering of risk and saving of time. It literally is a saving of money. It’s not that there aren’t good reasons to not do it. It’s, I’ll call it a mistake to not do it. Robert, anything else you’d want to add in closing? I know that you and I, we already talked, we want to do a part two here. I think there’s two big themes around workers’ comp, and maybe we’ve uncovered a third here. Maybe we do one just a show where we just talk about worker comp in general, maybe some of the mega trends. What is happening in the different states? Where’s it going? I think maybe the higher probably pain point for folks is going to be around mitigating rates. How do you manage your workers’ comp policy and your workforce in such a way to be paying as low a premiums as is legally possible? Is that fair to say?

Robert Campbell:
It is. We could go for another hour on this topic easily. So the workers’ comp experience mod is real. It can be very beneficial, it can be very painful, and the employer really controls whether they realize it or not, whether they’re on the pain or the pleasure side of that.

Mike Vannoy:
All right, well, we’ll make that number two for everybody watching. If you got value from this conversation today, hopefully you did. If you liked the conversation, I’d encourage you to comment and share on whatever platform you choose, whether you’re listening as a podcast, watching on YouTube or watching on our website. Robert, thank you very much for the time. Really enjoyed the conversation.

Robert Campbell:
Thanks, Mike. I had a great time today,

Mike Vannoy:
And thanks to everybody else. Until next time, thanks again.

Speaker 3:
That’s it for this episode of Mission to Grow. Thanks for joining us today. For show notes and more episodes, visit us at missiontogrow.com. If you found this content valuable, I invite you to share it with a friend and subscribe to the show. If you really want to help. I’d love it if you left a five star review on Apple Podcasts, YouTube, or wherever you listen. Mission to Grow is sponsored by Asure. Asure helps more than 100,000 businesses get access to capital, stay compliant, and develop the talent they need to grow. To learn more about how Asure can help your business grow, visit Asuresoftware.com. Until next time.