Pay As You Go Workers Comp solves some unique problems for business owners. With most payroll companies, there’s almost no cost to enrolling in a Pay As You Go Workers Comp program, so it’s a great solution for many employers.
An Overview
I’ll go over some basics about Workers Comp coverage so that we can all be on the same page before diving deeper into the Pay As You Go program.
Workers Comp is a type of insurance policy required by most states when a business has employees. When a business’ employee is injured, Work Comp provides financial protection against the costs of the injury, such as medical expenses and a portion of the injured worker’s lost pay.
Workers Comp premiums are based on the type of work being done and the payroll paid to employees. Premiums are adjusted retroactively through an audit following the end of the 12-month policy term, which often results in premium changes.
Estimating payroll is not an exact science, so it’s incredibly rare for there to be no billing changes following an audit.
This is the central problem of the Workers Comp policy: cost uncertainty.
The Solution: Pay As You Go Workers Comp
Here’s an example of a common problem. A business has 50 employees and the average salary is $100,000, creating a gross payroll of about $5,000,000. However, every employee gets a raise, sales people qualify for bonuses, some people leave or get fired, and the business grows faster than expected and hires new people.
The last thing the owner thought about was Workers Comp premiums. When the audit is finished, it turns out there was actually $6,000,000 in payroll, resulting in the Workers Comp premium increasing by 20%. All of a sudden, you’ve got a bill for potentially tens of thousands of dollars along with now increased ongoing Workers Comp expenses.
Previously, the only solution was to manually reviewing payroll throughout the year and then manually adjust your payroll estimates during the policy term. This wasn’t much of a solution because realistically, who has time to do this? And is it even worth the time it takes?
Then came Pay As You Go Workers Comp (aka Payroll Billing).
Insurance carriers and third party administrators offer real-time payroll tracking and integration that does this for you automatically. Now, the premiums you pay automatically adjust in real-time, avoiding the potential additional premium and keeping you from over-paying the insurance company.
Additional Benefits of Payroll Billing
Relieving the uncertainty of your Workers Comp bill remains the primary benefit, but there are other advantages.
The first is the benefit of cash flow. Let’s say that you run payroll on an every-other week basis, or 26 times per year. Would you prefer to pay 25% down, then monthly installments on a likely inaccurate payroll estimate? Or would you rather pay $0 down, then 26 installments automatically withdrawn every other week? The cash flow benefits here speak for themselves.
The second is less administration. Once the program is set up correctly, it almost runs by itself. The only change is making sure you, your payroll company, and your broker are all coordinating to make sure class codes and reporting are properly understood. Once that’s done, all you have to do is make sure your assigning the right class code to employees when you onboard them.
The third – and this is another big one – it makes the audit easier. When payroll is reported accurately in real time, the audit is easier to complete. It still has to be done to verify the information is right – as well as to review subcontractors in certain industries – but an often strenuous process for business owners becomes less worrying and less time consuming.
Setting up for Success in Pay As You Go Workers Comp
Like anything else, the success of your Pay As You Go billing program will depend on the onboarding and implementation. Open communication between you, your payroll company and your insurance broker are key.
- The broker must communicate with the payroll company to make sure they are set up correctly to process the payroll reporting.
- The broker must communicate with you, the business owner, and your team, so that the proper procedures are in place so the program runs accurately.
This isn’t just about class codes either. Just one example is the Certificate of Insurance programs that must also be in place and monitored if you use independent contractors. - Finally, the broker must verify correct implementation across all parties, including with the insurance company.
The importance of this step cannot be understated. Without the correct implementation, there is incorrect billing through the policy term and the benefits of the program are largely washed away.
What’s Next
Do you have a Workers Comp policy but don’t yet have Pay As You Go billing in place?
Do you hate your payroll company but can’t move away because of the awesome benefits of Pay As You Go Workers Comp?
Are you hiring for the first time and want to have the benefits of this program but don’t know where to start?
Here at Stillwell Risk Partners, we have the experience of working with Pay As You Go and have access to the carriers you need, so let’s get started.
Send me your info at: ryan.stillwell@stillwellriskpartners.com or book an appointment with me here: