4 Advantages to Pay as You Go Workers’ Compensation.

Small business owners have a lot to think about. Whether it be finding new clients, efficiently servicing the clients you do have, making sure your employees are paid on time, what type of insurance to offer your employees, to what type and how much insurance coverage is needed to adequately protect the business; a business owner must be involved in all of these decisions. One of the largest fixed costs most small business face is workers’ compensation insurance coverage.  In 48 out of 50 states this is required by law for nearly all businesses to carry this coverage. For this reason, any way to limit the cost of this coverage is helpful to a small business. Especially a start-up, a small business with a seasonal business cycle or a small business with cash flow issues.  Pay as You Go Workers Comp Insurance Coverage is one option to help these types of businesses.

Pay as You Go Workers Compensation is a great way for seasonal and cash strapped small businesses to free up cash.

Improves Cash Flow

Most Workers Compensation Policies require a portion of the policy up front to establish coverage.  After this initial payment the company pays 9 monthly payments beginning 3 months in to the cycle. The amount that is due up front is typically 25 or 30% of the entire premium. With the Pay as You Go Option most businesses, depending on revenue, can get policies in place for only a few hundred dollars. This allows the business to free up cash for more immediate business needs.

Increases Payment Accuracy

Pay as You Go Billing allows businesses to accurately pay what they owe each month based on real time payroll amounts. In a traditional work comp policy the payroll amounts are an estimate and during an audit at the end of the period they either are offered a refund for overpaying or they are charged for the additional amount of premium owed. Pay as You Go lessens this burden by allowing companies to pay a more accurate amount each month in real time.

Simplifies the Auditing Process

Because the amount of premium is paid in real time based on the payroll each month there are less inaccuracies during the auditing process. Typically the biggest problem during the auditing process stems from the business being improperly classified. This can cause a dramatic over or under payment if the business is supposed to be in a classification code that is dramatically more or less dangerous. A good example of this is related to driving risks. If a company has employees drive to many different locations to do a job as opposed to do a similar job at only one location without the employees operating a vehicle those are two class codes that are dramatically different risks and premium is dramatically different for those two businesses.

Allows the Business to Budget more effectively

When a business has a more accurate assumption of what their premium will be from month to month and throughout the entire year they can more accurately budget for other expenditures. This is important for new or growing businesses. If you are adding on to your location, thinking of buying new equipment or adding new employees than what you pay in premium will determine what and how much you can spend on these other parts of your business. Businesses that use a traditional workers comp policy may have to be more conservative in their growth because they need to keep more cash on hand for the auditing process.

 

What is Pay as You Go Workers’ Compensation?

Pay as You Go Workers’ Compensation Insurance is a fairly new program that is designed to help business owner’s free up cash so they can pay their insurance premium’s monthly instead of in one lump sum. Pay as You Go Workers’ Compensation benefits employers in three main ways:

  1. Pay as You Go Workers Compensation Insurance allows businesses to pay their premium monthly instead of in one large payment.
  2. Pay as You Go frees up cash flow for more immediate business needs.
  3. Pay as You Go prevents audits because both payroll and premiums are calculated monthly instead of yearly.

My Insurance Question can help you pick out the best Pay as You Go Workers' Compensation Insurance Policy.

Pay as You Go Workers’ Compensation Insurance Coverage benefits businesses by allowing them to pay their insurance premium’s monthly based on the payroll of their workforce that month only. This is a great option for industries like construction, farming or landscaping. These industries sometimes have a hard time forecasting payroll because of the weather and many other factors. If your business deals with these types of issues than Pay Go may be a great option for you and your business.

 

Another benefit of Pay as You Go Workers’ Compensation Insurance is that it frees up cash flow for more immediate business needs. With a traditional Workers Comp policy typically twenty five percent of the premium is due all at once. The rest is usually paid in nine monthly payments. This means the business is spending money on insurance immediately that could be used on other more urgent business needs.

Pay as You Go Workers' Compensation Insurance

Finally, business owner’s benefit from Pay Go Workers’ Compensation Coverage because it prevents audits from happening more frequently. An end of term audit still happens, but Pay Go prevents audits from happening more frequently and makes the difference owed much smaller. With the monthly payment format there is less risk of over or underpaying the premium.