Traditional workers comp policies require you to estimate your annual payroll upfront and pay a large portion of your premium at the start of the year. Pay-as-you-go workers comp offers an alternative that ties your premium payments directly to your actual payroll each period. Here is how it works and who it benefits most.
How Pay-As-You-Go Works
With pay-as-you-go workers comp, your premium is calculated and charged based on your actual payroll each pay period rather than an upfront estimate. Your payroll data is sent to the carrier each time you run payroll, and the corresponding premium is collected automatically. At the end of the year, the audit is typically much smaller because you have been paying based on actual payroll all along.
Who Benefits Most from Pay-As-You-Go
Businesses with fluctuating payroll, seasonal workforces, or rapid growth benefit most from pay-as-you-go structures. If your staffing levels change significantly through the year, pay-as-you-go keeps your premium aligned with your actual exposure and eliminates the risk of a large audit bill at year end. Small businesses that want to preserve cash flow also benefit from spreading premium payments across the year rather than paying a large deposit upfront.
Is There a Downside?
Pay-as-you-go typically requires integration with your payroll system. If your payroll system does not support the integration, setup can be more complex. Some carriers also charge slightly higher rates for pay-as-you-go policies to compensate for the cash flow they give up by not collecting a large deposit. An independent agent can compare pay-as-you-go and traditional options side by side to see which is more cost-effective for your situation.
Ask Comp Matters Inc. About Pay-As-You-Go
Comp Matters Inc. helps East Coast businesses evaluate pay-as-you-go workers comp options from multiple carriers. Call (631) 248-2500 for a free consultation.
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