Pay as You Go Workers Comp is a type of insurance policy that allows a business to pay their insurance premium monthly based upon payroll as opposed to an estimated lump sum. This lump sum is usually based on last year or the past three years payroll and it is usually for 25 percent of the total amount. For many businesses, this is an excessive amount compared to the cash they have on hand. If this is true for your business, the Pay as You Go Option may be ideal for your business.
There are three main ways in which Pay as You Go Workers’ Compensation can benefit you as an employer:
- Allows you to pay premium monthly instead of in one large payment.
- Allows you to free up cash for more immediate business needs.
- Allows you to prevent most mid-term audits.
Monthly Payments
Pay as You Go Workers’ Compensation benefits you as a business owner by allowing you to pay your workers comp insurance premium monthly based on the payroll each month. This eliminates the need to tie up necessary cash in a large payment at the start of the term, just to get coverage in place. For many business owners, this means they can get coverage in place for as little as a few hundred dollars. This allows business owners to use that additional cash on inventory or any other more urgent business need.
Free Up Cash
Another benefit of Pay as You Go is that it frees up cash flow for more immediate business needs. Because you do not have to pay the large lump sum payment on the front-end you can instead use that cash to reinvest in your business or give an employee a raise. With a traditional Workers Comp Policy typically twenty five percent of the premium is due just to get coverage in place. The rest is usually paid in nine monthly payments. If you are a business with a small payroll or operate in a favorable class code, this may not be a big deal. If you operate in a high risk industry or you have a large payroll, this twenty=five percent down payment can be significant.
Prevent Audits
The third and possibly most important benefit of Pay as You Go Workers’ Compensation Coverage is that it prevents mid-term audits from happening more frequently. This is because your payment is in real-time based on the previous months payroll instead of an estimate of last years payroll. If you are in an industry that is dependent upon the weather, your payroll can be drastically different from year to year. Pay as You Go Workers Comp provides your business with less risk of over or underpaying premium.
