How a Residential Cleaning Company Can Benefit From Pay as You Go Workers Comp
Workers’ Compensation Insurance is required by law for businesses in most states. So is General Liability in most industries. For that reason, these two policies are the bare minimum coverage a business needs to be in business. Now for a cash-strapped, seasonal, or start-up business; coming up with the initial payment to get coverage in place can be difficult. Because of this issue, many carriers have come up with alternative payment options for these necessary coverages. The most popular alternative payment option is Pay as You Go Workers’ Compensation. One industry in particular that benefits from this option is the residential cleaning industry. Here are four ways residential cleaning companies benefit from choosing the Pay as You Go Option for Workers Comp Coverage.
Pay-as-You-Go has lower up-front costs.
Pay-as-You-Go frees up cash for more pressing business needs.
Pay-as-You-Go allows businesses to pay premium monthly.
Pay-as-You-Go prevents most audits
Lower Up Front Costs
When a cleaning company decides to go with a traditional workers compensation policy, they are required to make a large lump sum payment just to get coverage in place. They later have to make nine monthly payments at the end of the term. These payments are based upon an estimate of payroll from last year. If your business has plenty of cash on hand and your employee hours are regular from year to year this may not be much of a problem. Most residential cleaning companies do not have regular payroll or mounds of cash on hand. If this sounds like your business than the Pay as You Go Option is a great way to get coverage in place without tying up too much cash.
Frees Up Cash
Now if you are a business that is not rolling in cash, you may need to consider the Pay as You Go Option. This type of alternative payment method for workers comp coverage allows you to not only lower your up front costs, but it allows you to free up cash throughout the year by paying your premium in real-time each month based upon the accurate payroll from the previous month. This is instead of paying premium based upon an estimate of payroll from last year or the three previous years. This estimate can cause you to severely over or under-pay on premium.
Allows Monthly Payments
Allowing payments of premium each month can help your business in many ways. One of the best ways it helps is by keeping your payments accurate from paying them in real-time. When workers comp premiums are paid on an estimate basis, it can cause you to severely under or over-pay throughout the year. This gets cleared up whenever an audit takes place and an audit takes place at the end of each term, but if you under pay throughout the year it can cause your business to have a surprise payment at the end of the term. Even if you are one of the lucky businesses who over-pays and gets a refund at the end of the term, you still have had additional cash tied up in premium payments throughout the year. This is cash that could have been spent on more pressing needs.
An additional benefit your residential cleaning business can gain from choosing the Pay as You Go Option is to prevent audits mid-term. Because the payroll is calculated monthly by a payroll company it is accurate. This eliminates the need for a mid term audit because the payroll company is auditing the premium payment each month. The Pay as You Go Option also makes the end of term audit much more smooth because the payments have been done based on actual payroll each month. Your staff will spend less time gathering data to compare your actual payroll with the estimated payroll and premium payments based on that estimate. If you have ever underpaid premium and owed a significant amount at the end of the term, you appreciate the accuracy this program provides.
5 little known facts about insurance, every small business owner should know.
General Liability covers my employees if they are injured at work
This is false. General Liability Insurance covers your businesses liability to third parties injured by the actions of your business. This goes for both property damage and bodily injuries. One thing a general liability policy does not cover is the injuries that occur to your employees. For these injuries you need a separate workers compensation insurance policy. Workers comp will cover your employees for medical care and some lost wages when they are hurt on the job and not able to work.
The only thing that determines your rate for insurance is your loss ratio.
There are many things that go in to how a carrier determines what you pay in premium for coverage. First is your classification code. It is pretty easy to understand that an accounting firm is taking on a lot less risk compared to a roofing company. The level of risk is going to be represented in the amount those businesses pay for premium.
Your personal auto insurance will cover your car when you are using it for business purposes.
This statement is not true. If you are using your car for business purposes, it is not completely covered under your personal insurance policy. The personal insurance policy will pay to cover the damages to your car, but it will not cover your liability to third parties. That liability falls on the shoulders of the business. For that reason, you will need to secure either a commercial auto policy or a hired and non owned auto policy.
You must pay your insurance premium in full up-front.
This is not true. Most commercial policies require 25% or more of the premium in order to get coverage in place than you pay 9 monthly payments over the last 9 months of the policy period. There are also options the insurance industry has developed to help cash strapped companies. This is the Pay as You Go option. Pay as you go can get coverage in place for only a few hundred dollars and then you pay premium each month based upon the monthly payroll. This is an excellent option for seasonal or cash straped businesses.
There is no need for Business Insurance if you work out of your home.
This is absolutely not correct. The liability needs you face are different if you work from home, but there are still risks you need to cover. If you drive to clients houses you need some form of commercial auto. If you have specialized equipment you may need inland marine coverage and if you offer professional advice you more than likely need professional liability. These are just a few coverages you may need for a home office and an experienced insurance professional can help you make sure your business is protected with just a short conversation. It is important to be thorough and honest during these conversations.
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.
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.