Small business owners in today’s business environment have a lot to think about. Finding and keeping employees is crucial to the success of your business long term. Acquiring good clients is equally important to generating enough revenue to keep the doors open. Purchasing the right amount of materials to keep your orders fulfilled, but not having cash tied up in unnecessary inventory can be crucial as well. All of these tend to eat up cash-flow. This is why some insurance carriers have developed a method of paying workers compensation premium that ties up less of your revenue. This payment option is called Pay as You Go Workers Compensation. This option allows you to pay your premium each month based upon the previous months payroll. This allows businesses to free up cash for more immediate business purposes. Here are four ways Pay as You Go Workers Comp can benefit your business.
Pay as You Go Improves Cash Flow
Most traditional Workers Comp Policies require a significant part of the premium up front just to establish coverage. This payment is typically 25-30 percent of the entire premium. This payment is estimated off of the payroll from the previous year or from the three previous years. After this initial payment the business must pay the additional premium in nine monthly payments. 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
Because the insurance premiums are paid in real-time based upon the previous months payroll, it allows businesses to more accurately budget other business needs. This is because payrolls fluctuate from year to year and with a traditional workers comp policy the premium is an estimate based upon the previous years payroll over the course of the entire year. Many businesses have payrolls that fluctuate from year to year and even month to month based upon a lot of factors. If your business is one of these, the pay as you go option may be ideal for your business to get your budgeting as accurate as possible.