Pay as you go workers comp takes the headache out of buying insurance and makes it possible to increase cash flow.
What’s with all the hype around pay as you go workers comp? Long gone are the days of calling up an insurance provider and paying for your premiums in a lump sum. Today’s business owners want a more accurate and affordable way to pay for their workers’ comp policy. The pay-as-you-go model offers smaller businesses many benefits over the old system. Here’s why you’ll never want to make a bulk payment ever again.
What Is Pay-As-You-Go Workers’ Comp?
When you buy WC insurance, you need to purchase enough coverage for every employee. But let’s face it. Your workforce changes all the time. There’s no guarantee you’ll still have the same number of workers six months from now.
Unfortunately, since insurance companies tie WC coverage directly to your payroll, you may end up paying too much. Even worse, you could owe money at the end of the year. Neither situation is ideal for your bottom line. What if there was a way to guarantee you only bought the coverage you need? Well, there is, and the insurance world calls it pay-as-you-go.
Switching to a pay-as-you-go policy takes the guesswork out of buying WC coverage. Instead of paying your premiums all at once, you make small payments whenever you run your payroll. This method ensures you only purchase coverage for active employees.
If that isn’t enough to make you want to switch, there are even more perks to pay-as-you-go. You don’t have to worry about large down payments or hidden fees. And the annual audit will become a distant memory. Just think about what you’ll do with all the money you can save!
What Are the Advantages of Pay-As-You-Go Workers’ Compensation?
Pay-as-you-go plans are more popular than ever and for a good reason. There are so many advantages to making the switch, and once you do, you’ll wonder why you didn’t jump ship sooner. Here is just a sampling of the benefits you’ll enjoy:
- Say goodbye to hefty down payments. Insurance companies often require down payments from their customers, and these can add up fast. It’s possible to save some cash by going with a pay-as-you-go plan. Not only will you keep more money in your pocket, but you also won’t have to worry about a long-term commitment.
- Get rid of lump-sum premiums. Typically, companies have to pay for their WC coverage in advance. If you don’t have a lot of cash flow, it may be tricky to come up with enough money. But with pay-as-you-go, you only make small payments whenever you run the payroll. Your budget will thank you later.
Are There Any Cons to Pay-As-You-Go?
It’s always best to present both sides of the argument. But when it comes to pay-as-you-go workers’ comp, the cons are few and far between. This modern way of paying for insurance coverage truly stands out of the crowd.
The only disadvantage (if you can even call it that) is the automated system. Some business owners feel disconnected from their WC premiums. Since the insurance company always debits your bank account without fail, it’s easy to lose track of how much you paid. You may not notice any fluctuations in your premiums just because it’s a well-oiled machine.
If you feel this could negatively affect your business, you should remind your payroll department to monitor all WC payments. Compare your premiums each period to see if you notice any trends or changes.
All in all, pay-as-you-go really helps small businesses more than it hinders them. And most owners don’t have anything negative to say about the system. Give it a try, and you’ll never want to pay lump-sum premiums again!
Only Pay for Coverage You Need
When employers buy workers’ compensation, they want a policy that will cover all the jobs and employees in their company. Their provider will estimate the premiums based on the class codes, number of employees, and experience mod rating. But this practice does leave some room for error. In the end, you may pay the wrong amount.
Stop overpaying or underpaying for coverage. Too many businesses end up paying too much or too little for their WC premiums. They only learn of the error during their annual audit. With pay-as-you-go, the insurance company bases each payment off your actual payroll. The payments are not estimates, but rather an exact amount.
What if you hire more employees during the period? Do you need to update your class codes if you change your job descriptions? There’s no way to determine how your company will grow over the year. Instead of taking a chance that you’ll overpay, it’s best to pay-as-you-go. These policies reduce inaccuracies, so you never have to worry about any financial surprises.
Improve Your Cash Flow
The more cash flow you have available, the more you can scale and grow your business. However, workers’ comp premiums can eat up a considerable chunk of your budget. And if you don’t pay enough throughout the year, you may end up with an unexpected bill from your insurance company.
Switching to a pay-as-you-go workers’ comp plan is one of the easiest ways to free up your cash flow. Your current payroll determines how much you owe whenever you get a new statement. And you never have to worry about forking over a large deposit like you would with a traditional policy.
Never Make a Late Payment Again
You already have a lot on your plate, and remembering to pay your workers’ compensation premiums may not be at the top of your priority list. However, if you continually send in your payments late, you may find yourself non-renewed at the end of the year. And once that hits your record, finding insurance becomes even more difficult.
Never forget to pay your premiums. Failure to pay is one of the leading reasons for nonrenewal. In many instances, the owner simply forgot to mail the check. And once you have a nonrenewal on record, buying coverage gets a lot tricker. Pay-as-you-go eliminates this risk. You’ll set up automated payments through your payroll system, and late charges will become a thing of the past.
Unlike traditional workers’ comp, the fully automated design of pay-as-you-go plans makes your life a lot easier. Each time you run the payroll, your provider automatically debits your account. You can finally stop worrying about pesky late fees, and there will never be a lapse in your coverage for nonpayment.
Wave Goodbye to the Annual Audit
End-of-the-year workers’ comp audits are a nightmare. They take a lot of time to complete, and business owners always worry they’ll end up owing more money. But when you purchase a pay-as-you-go policy, these audits become a thing of the past.
Since your actual payroll determines how much you owe, there’s no need for an audit. A pay-by-pay workers’ compensation plan guarantees you never underpay or overpay for coverage. Instead, you have peace of mind knowing you always pay the right amount each period.
What Do Workers’ Comp Auditors Look For?
Every year, those paying for traditional workers’ compensation coverage must deal with the annual audit. You’ll need to schedule it no later than 60 days after the expiration date of your policy. Audits typically happen at your workplace, but auditors may also contact you by mail or telephone.
The purpose of the WC audit is to make sure the premiums you pay accurately reflect your risk. There are three possible outcomes. If everything adds up correctly, you are in the clear for another year. But the audit could reveal you owe money. On the contrary, you could also receive a return if you paid too much.
The auditor will verify the class codes used for all your employees. They will also cross-check your payroll to make sure it’s correct. If any of these numbers are wrong, the auditor will let you know.
Workers’ comp audits also detect fraud. Insurance fraud is common. Some employers will falsify information just to save a few bucks. But remember that fraud is illegal, and the auditors will catch you. Here are some types of WC fraud:
- Purposely underreporting payroll to reduce premiums.
- Providing false information to an auditor, including job descriptions.
- Falsifying tax documents or payroll reports.
- Failing to disclose all employees or subcontractors.
Of course, not every error points to fraud, and auditors can tell the difference. If they find any discrepancies, they’ll suggest ways to remedy them. You will also have the chance to appeal the audit or request a revision.
After reading all that, it’s no wonder so many business owners dread the WC audit. What if you never had to worry about it again? Pay-as-you-go plans can make that dream a reality. Since you always pay the correct amount based on your actual payroll, you minimize risk. Many insurance companies let pay-as-you-go customers skip the audit. It may just become a distant memory.
What Does Workers’ Comp Cover?
Accidents occur in every industry. A carpenter can fall off a ladder just as easily as a secretary can fall walking across the copy room. It doesn’t matter how a work-related injury happens. What matters is getting medical care for your employee right away.
However, anyone who’s ever navigated the medical system knows how expensive treatment can be. An ambulance ride can cost thousands. X-rays and lab tests will drive the bill up even more. And if a worker needs ongoing therapy or rehab, you can expect a nonstop stream of bills.
Who will pay for everything? Whenever an employee hurts themselves while working, you are liable for their injuries. They can sue you for monetary damages. That’s why you need to protect your business with workers’ compensation insurance.
The average payout for a WC claim is over $40,000. That’s the price of a luxury vehicle! And that number can quickly skyrocket depending on the type of injury. Serious injuries, such as head trauma, can cost $100,000 or more to treat. That’s only the tip of the iceberg. Many employees need ongoing care or disability. Do you have that type of money floating around?
Workers’ comp pays for any medical bills you accrue due to a work-related accident. Your plan should cover all necessary treatments, medications, lab work, and therapy. It will also pay for lost wages, disability, or funeral costs.
How Much Does It Cost to Get Workers Compensation Insurance?
The price of workers’ comp varies from company to company. A few factors come into play when determining your premium. These include your employer payroll, class codes, and experience modification rating. Multiplying all these numbers together should give you an estimate of how much you’ll pay each year. Since your business may change throughout the year, it’s better to pay-as-you-use to avoid paying too much or too little.
It makes sense that every company pays a different amount for workers’ comp coverage. But why do those in the same industry may have vastly varying premiums? What gives?
Insurance companies exist for one reason—to make money. Sure, low premiums draw in more customers, and more business equates to higher profits. But if they don’t charge high enough premiums for riskier industries, insurers may end up losing money.
To help level the playing field and make figuring out premiums easier, insurance companies use a tried-and-true formula. It is:
Class Code Rate (times) Employer Payroll (times) Exp Mod Rating (equals) Premium
What does that mean for your company? Let’s break it down.
The class code rate determines how much you’ll pay based on an industry’s risk level. The National Council on Compensation Insurance (NCCI) assigns a specific code to each job. While some businesses only fit into one class code, others may use multiple. It’s crucial to list every applicable class code for each job description on your insurance policy.
The NCCI class code determines how much you pay per $100 of your payroll. Your employer payroll may change as your workforce increases or decreases. The more employees you hire, the higher your premiums.
Think of your experience modification rating like a credit score. All companies start with a rating of 1, but the rating increases with each WC claim you make. Every time you report an accident, you should expect your premiums to increase accordingly.
Taking this formula into consideration, it makes sense why high-risk industries end up paying higher rates. And although it may seem like larger corporations would also pay more, that’s not always the case. Sure, they may have higher premiums on paper, but many end up paying less per person. Bigger companies can often talk the price down. As a small business owner, you don’t have the same luxury. That’s why you need to find a way to lower your premiums without sacrificing coverage. A pay-as-you-go-plan may be the perfect compromise.
How Much Does Workers Comp Cost a Small Business?
On average, small businesses should allocate about $450 per employee each year to workers’ compensation. The industry and class codes of each job will determine the final number. And if a company has numerous claims on record, their rates will be higher. Many small businesses find it’s cheaper to buy coverage from a PEO than with a private insurer. Even with blemishes on their records, such as non-renewal or lapse of coverage, these companies can often save money.
How Much Is Workers Comp Self Employed?
Since self-employed workers don’t have any employees, they are exempt from buying workers’ comp insurance. However, they can still get coverage if desired. Most health insurance policies don’t cover work-related accidents, so having workers’ comp is a good idea. Expect to pay a minimum of $250 a year. Working in a high-risk industry will increase that amount.
Who Needs Workers’ Comp Insurance?
Any company that hires employees should buy a workers’ compensation policy. It doesn’t matter if you have 5 or 500 workers, you should never forego insurance coverage. Your plan will protect all the employees on your payroll. Whether you work in construction, trucking, food service, or even home health care, workers’ comp is a necessity.
You may be exempt from WC if you don’t have any employees. Companies that only sub-contract or hire 1099 workers are not required to provide coverage. But it’s still important to make sure these workers obtain general liability insurance. That way, if an independent contractor gets hurt on the job, you won’t have to worry about getting sued.
How Do You Pay Workers Compensation?
You know you need to buy workers’ comp for your employees, but where do you begin? There are three main ways to get workers’ compensation: State Fund, private insurance companies, and PEOs can all help you get coverage. How do you know which one is best for your small- to medium-sized business? Before you pay workers’ comp premiums, you should evaluate the key differences between these three providers. Here’s what you need to know:
- State Fund: Every state has funding set aside to help businesses buy workers’ compensation. Those with the State Fund send their premiums directly to the government. The state department pays out any monies relating to claims. While this sounds great in theory, it’s often the last resort. The State Fund has a reputation for high rates and bare-bones plans. But if you have a high modification rating or coverage lapses, it may be your best choice.
- Private Insurance Company: Most companies begin their workers’ comp search by getting quotes from private insurers. Private insurance companies collect premiums from their clients. You can either choose to pay annually or pick a pay-as-you-go plan. The insurance company is then responsible for any benefits you receive. But unless you run a large corporation, you may end up paying expensive premiums. To make matters worse, these companies are less likely to accommodate high-risk industries.
- PEO: Running a smaller business doesn’t mean you have to pay outlandish premiums. PEOs pool your insurance premiums with other companies to help get lower rates. Not only that, but most can still find you converge with a few blemishes on your record. Many also work with higher risk or niche industries. Plus, you can even count on a PEO to handle your human resources and risk management needs.
Do Payroll Companies Offer Workers Compensation?
Finding a low price for workers’ compensation may lead you towards payroll processing companies and PEOs. While these businesses may sound similar, they operate in very different ways.
Payroll processing companies do just that—they process payroll. However, that doesn’t mean they can’t help you find WC coverage. Payroll companies often have partnerships with local insurance companies. They may be able to help you enroll for coverage, but it’s up to you to handle everything else.
A Professional Employer Organization (PEO) handles human resources, payroll, and workers’ comp services. They’re an ideal choice for many small- to medium-sized businesses. Partnering with a PEO means entering into a co-employer relationship. You’ll handle all the operating tasks, while the PEO will tackle the rest.
Unlike payroll processing companies, PEOs can help you get the cheapest price for workers’ comp. And you won’t have to compromise on quality! PEOs usually specialize in a variety of industries, including high-risk. In addition to insurance benefits, many PEOs provide other services. These may include payroll, human resources, and risk/claim management.
Yes, some payroll companies do offer workers’ compensation insurance, but so do PEOs. It’s best to check with each provider before making an assumption. However, many small businesses find it’s better to choose a PEO over a payroll company.
As a leading PEO, you can trust Coastal Work Comp Brokers to help your business get workers’ comp coverage. High-risk and high-mod industries are our specialty. We even work with niche industries, new ventures, and multi-state risk companies. It’s no wonder why we have thousands of satisfied clients across the country.
Does Pay-As-You-Go Work for Everyone?
While it may seem like pay-as-you-go is the easy choice, it’s not always the best option. The type of workers’ compensation policy you buy depends on many factors. You should take the size of your company and budget into consideration.
Large corporations don’t usually consider pay-as-you-go plans. Instead, they just pay a lump sum for their premiums each year. But these companies have more leverage with insurance agencies. Since they employ more people, they can usually negotiate lower rates. And making a single payment each year is easier for the accounting department.
Smaller companies, however, don’t have as much wiggle room. Insurance agencies often try to nickel and dime smaller entities. If you run a small- to medium-sized business, pay-as-you-go just makes more sense. It’s easier on your budget to make nominal payments throughout the year. And having more flexibility is also alluring.
If you think a pay-as-you-go model is right for you, it’s time to get expert advice. Wonder if Coastal Work Comp Brokers is the right fit for your business? Ask yourself these questions:
- Do you employ 5-500 workers?
- Do you want to lower your WC premiums?
- Do you work in a high-risk industry?
- Do you have a high experience modification rating?
- Do you have any losses or gaps in your coverage?
- Are you looking for an alternative to expensive State Fund plans?
- Are you tired of dealing with the annual audit?
- Do you want to reduce the risk of a lawsuit?
Whether you answered yes to one or all of these questions, Coastal Work Comp Brokers can help. Let us get you pre-qualified and find you the lowest rates available. We’ll make sure you don’t overpay for coverage you never use. Our pay-as-you-go plans will save you time and money. It’s a win-win situation for your growing business!
Lower Your Premiums and Adhere to Laws with a Pay-As-You-Go Plan
Almost every state has workers’ comp laws in place to protect employers and employees. Operating a business without insurance is not only a risky move, but it may also be against the law. Maintaining enough coverage to meet the requirements of your state is a must. Besides, you never know when a worker could get hurt on the job. A single work-related accident could mean financial ruin for your company.
Every company needs workers’ comp coverage, but you don’t have to spend a fortune to buy it. If you employ 5-500 workers, Coastal Work Comp Brokers can help you find an affordable and high-quality policy. Our pay-as-you-go plans will ensure you always pay the right amount on time. Best of all, you won’t have to worry about time-consuming annual audits ever again. We have thousands of clients, and we can help you lower your premiums by 30-40 percent.
Coastal Work Comp Brokers will match your company to the right WC policy for your business needs. With our expertise, you’ll never have to worry about the aftermath of an on-the-job accident again. Insurance will handle all the medical bills, and your worker will be able to focus on their recovery.
Here at Coastal Work Comp Brokers, we specialize in high-risk and high-mod industries. New ventures, companies with a lapse of coverage, and those needing multi-state risk coverage are also welcome. Call 323-543-4141 for expert help in finding the best pay as you go workers comp option for you.