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  • Advantages of ‘Pay-as-You-Go’ Workers’ Comp
    Game Plan

    Pay Your Workers' Comp Premiums Based on Your Schedule

    Workers’ compensation insurance under the “pay-as-you-go” method allows you to pay your premiums based on a more accurate payroll period—that is, based on your actual payroll. (Premiums are based on a rate per 100 of payroll, just like traditional workers comp.) That can help protect you from audit exposure, because your premium is based on real-time payroll wages, not an estimate.

    This contrasts with traditional workers’ comp premiums, which are based on your projected annual payroll. Under this method, you estimate your budgeted payroll for the next policy period—generally a year—and provide the estimate to your insurance agent. Your workers comp policy is then issued with a premium based on that projection.

    Reality check: Pay-as-you-go does not free you from a workers comp audit by an insurance company auditor. After all, it’s not a different type of policy; it’s simply a different payment option. Thus, workers’ comp policy conditions are not affected. Your workers comp program will still be audited, but with pay-as-you-go, those audits will be based on actual, instead of estimated, payroll. The audit—conducted by phone, mail or in person—will determine if your payroll and class code are accurate, and also ensure that your sub-contractors had workers comp coverage during the audit period. Bear in mind that the audit process can be complicated. An overview can be found here.

    Game PlanGame Plan

    Game Plan

    If you need a quick primer on workers’ compensation insurance in general, we can help. Take a few moments to read this Business Owner’s Playbook article.

    Of course, when considering a pay-as-you-go option, always keep in mind the myriad other factors involved in managing a workers’ compensation program. Carefully weigh whether this option is right for your company and how it will affect your business operations.