Some form of workers’ compensation has existed since 1911. While workers’ compensation has existed for many years, pay-as-you-go workers’ comp is a fairly new development. With this alternative payment option, you can simplify your premium payments, avoid deposits, and prevent audit issues.
What Is Pay-As-You-Go Workers’ Compensation?
Pay-as-you-go workers’ comp is similar to normal workers’ compensation, but it isn’t paid in a lump sum. Like traditional workers’ comp, pay-as-you-go workers’ comp provides coverage for lost wages, disability, rehabilitation, and medical expenses if a worker becomes injured.
Normal workers’ compensation requires you to pay your premium on an annual basis. By getting pay-as-you-go workers’ compensation, you can pay for your premiums based on your payroll numbers for the month. Because the insurance charges monthly payments, you don’t have to pay for upfront deposits or huge price adjustments.
How Standard Workers’ Compensation Functions
When you sign up for traditional workers’ comp insurance, you generally have to pay a down payment or deposit. Workers’ comp insurance is provided for the upcoming year, so the premiums are for a full 12 months’ worth of coverage. Because they are made based on an estimate of your payroll, your company will be audited at the end of the term to determine if the estimate was accurate or not. In most cases, the estimate won’t be perfectly accurate, so you will have to pay more or receive a refund at the end of the term.
This type of premium payment creates a few headaches for businesses. It means you have to pay a large deposit upfront. After your annual audit, you have to pay for next year’s premiums and price adjustments for last year.
How Pay-As-You-Go Workers’ Comp Works
In comparison, pay-as-you-go workers’ compensation is relatively straightforward. If you get your insurance plan through your payroll provider, then your payroll data will be automatically sent to the workers’ comp insurer. Afterward, this information is used to create your monthly premium cost.
What Is the Difference Between Traditional and Pay-As-You-Go Workers’ Compensation?
The biggest differences between these two types of workers’ compensation plans involve down payments, premium timing, overall costs, and administrative burdens. While a traditional plan charges annual premiums, pay-as-you-go plans use monthly premiums. Pay-as-you-go insurance also doesn’t require large deposits or down payments.
When traditional workers’ comp reaches the end of the policy, the insurer often does some type of audit to see if the premium charged was the correct amount. Because the amount is often incorrect, the business must pay the difference. Sometimes, this amount is high enough that some companies decide not to pay it. Instead, they move on to a different insurer.
This non-payment risk is integrated into the premiums that traditional insurers charge. Because pay-as-you-go plans don’t have the same non-payment risk, they can often charge businesses less.
The Benefits of Using Pay-As-You-Go Workers’ Comp
There are many benefits associated with using pay-as-you-go workers’ compensation. Because these plans can be used through your current payroll provider, they are often incredibly convenient for employers. Among other advantages, businesses can enjoy some of the following benefits.
- No Down Payments: You don’t have to worry about paying an upfront deposit to begin using your insurance plan.
- Easier Audits: Some pay-as-you-go workers’ compensation insurance plans don’t conduct audits with every company. They’ve already reviewed payroll data from your payroll company, so they can simply email you if there’s a question. If there is an audit, it will likely be less intensive.
- Better Cash Flow: You don’t have to worry about massive price adjustments at the end of your insurance term. Because of this, your company can enjoy better cash flow and liquidity.
- More Streamlined Administration Processes: You don’t have to enter payroll data and worker classification codes by hand with pay-as-you-go options. The information is automatically sent to the insurer by your payroll provider, so you don’t have to waste your company’s time on administrative procedures.
- Enhanced Flexibility: Forecasting payroll can be challenging if you have a lot of seasonal, part-time, or temporary workers. It can also be difficult for growing businesses. Pay-as-you-go insurance charges premiums based on your most recent payroll, so it lets you scale up or down as needed.
- More Accurate Premiums: Because your monthly premiums are based on your real payroll data, the resulting charges are more accurate.
- Better Compliance: You are legally required to have workers’ compensation insurance. While the fees vary from one state to another, they can easily add up to thousands of dollars. In New York, the fee is $2,000 for every 10 days of non-compliance. While an annual premium bill can easily get lost, automated monthly payments can’t.
Integrate Pay-As-You-Go Workers’ Comp With Your Payroll
By integrating pay-as-you-go workers’ comp with your payroll system, you can reduce the amount of time and energy your company spends on workers’ comp. More importantly, you can make sure that you are in compliance with your state’s regulations.
If you want to simplify your workers’ comp, Asure can help. Our partner, E-COMP, helps companies find the pay-as-you-go plans they need. To find out more information about workers’ comp and payroll integrations, reach out to our small business payroll and HR experts today.