If you are a medium or small business owner, the pay-as-you-go worker compensation insurance is for you.
Most states in the USA require businesses to have worker compensation insurance. Worker’s Compensation Insurance safeguards your business from unforeseen circumstances.
If an employee gets hurt on the job or falls sick, worker compensation insurance pays for the medical expenses. It also covers job retraining and paid leaves.
What is pay-as-you-go worker’s compensation?
The pay-as-you-go model allows companies to pay monthly premiums based on their monthly payrolls. Earlier, companies had to project their annual payrolls and pay a yearly premium.
Since the premiums were paid on projections and not actual income, companies paid too much money. Traditional worker compensation insurance required you to pay a heavy down payment. It would be as much as 25% of the whole amount. This payment method caused companies to pay extra money.
Whether the company makes more money or less, the premium remains the same. The pay-as-you-go model allows an employer to adjust the premiums according to monthly payrolls—companies belonging to the service sector benefit greatly from this method.
Since there is no upfront payment, companies can save this money or reinvest it in their business. The pay-as-you-go workers compensation works best for people who own restaurants or a part of the cleaning industry. These industries hire rotational employees based on the demand.
Suppose you have 3 employees in the first month; you only have to pay a monthly premium for each employee. If you have 1 employee in the next month, you have to pay a monthly premium for one employee. Traditional worker compensation insurance does not allow you to change the premiums based on your employees. No matter how many people you hire or fire, you have to pay the same amount of premium each month. It doesn’t mean you lose money.
The insurance company later refunds the amount that is not utilized. But this is only done after the annual audit. It indicates whether your business is doing well or not; you have to keep paying a fixed premium from your pocket.
Pay-as-you-go worker compensation allows you to get insurance without a hefty premium. And since it will enable you to pay according to your income, you don’t pay extra money.
The money saved from this can be used for marketing your business or hiring another employee. The pay-as-you-go worker compensation has changed the face of worker’s compensation insurance.
Businesses can get directly in touch with insurance companies that provide a pay-as-you-go worker comp. You can also get in touch with your payroll company, which will then connect to your insurance company. These two agencies will communicate with each other and adjust the premium amount each month. It means you no longer have to worry about making monthly payments yourself.
The amount will be adjusted and automatically deducted from your account. This amount will be based on the number of employees and other variable factors. Since you no longer have to pay extra money each month, you will increase your profits.
These additional funds can be used to build your business further. Healthcare companies, Construction businesses, and landscaping companies will benefit from this model. Pay-as-you-go worker compensation is excellent for service-based industries.
Since these companies hire employees temporarily, they only have to pay a premium for the current employee. The monthly premium amount for each employee gets automatically deducted from your account. The monthly premium is based on actual income instead of projections. It makes the auditing process simple. The additions or deductions will be more accurate.
Traditionally, premium payment was based on forecasts. It made the auditing process extraordinarily complicated and less accurate. With the pay-as-you-go worker’s compensation, you know the exact amount. Of course, this figure fluctuates during an audit, but not as much as it does with traditional workers’ compensation insurance.
Pay-as-you-go worker’s compensation works well during a crisis. Every business has good and bad days. When the money is flowing, you don’t have to worry about premiums, but it is a problem if the cash flow is slow.
If you choose the pay-as-you-go workers comp, you end up saving cash. You can use the saved-up money in supporting the business during a crisis. Slow business is every small business owner’s nightmare. Thanks to the pay-as-you-go worker’s comp, you can quickly solve this problem.
Even though the pay-as-you-go model may sound perfect, it has a few drawbacks. Many payroll companies work with a single insurance agency. As a business owner, you do not have the freedom to choose from several insurance policies.
Another disadvantage is that you don’t get to compare policies. Your options in terms of policies become limited. Even though the numbers are based on actual income, your company will still need an audit.
Pay-as-you-go worker’s compensation insurance does not eliminate the auditing process. Business owners also lose track of the amount being deducted every month.
Since everything is automated, it is easy to forget that the premium cost increases with each hire. These disadvantages are pretty trivial. You can easily keep a check on these things.
Pay-as-you-go workers compensation and traditional workers compensation
Pay-as-you-go worker’s compensation helps businesses save money in the short term and the long term. It does not require you to pay a hefty down payment.
It saves you from spending a considerable amount. And since monthly payments are adjusted according to the number of employees, you end up saving a good chunk of money each month. Hiring employees increases the premium amount each month. Make sure to consider this when you choose pay-as-you-go worker’s compensation insurance.
The auditing adjustments are much more minor. When you lose an employee, your premium amount goes down. This way you don’t have to worry about paying extra money.
Traditional worker’s compensation requires you to pay a hefty down payment. Whether you lose or gain an employee, the monthly premium amount remains the same.
Since the premium is based on projection, the numbers are not always accurate. It requires significant auditing. If there is a difference in the amount paid, you receive a refund.
Is pay-as-you-go for me?
If you own a small or a medium-sized business, the pay-as-you-go worker’s compensation is for you.
It is more lucrative than the traditional worker’s comp. With the pay-as-you-go option, you will be able to save a lot of money. You can then use this money to expand your business. You can also add it to your monthly profits. If you go for the traditional method, you end up paying extra money.
Whether your income is more or less, you have to pay the designated amount. It might put a lot of strain on small businesses. When you own a business, the income keeps fluctuating. It is never the same.
Sometimes the company makes more money, and other times it goes to a loss. When the income is lower than expected, you have to pay premiums from your pocket.
The pay-as-you-go model allows you to pay a monthly premium as per your income. This way, you don’t end up paying extra money. You can also plan your budget accordingly.
Your budget doesn’t have to be based on projections. You can base it on actual income. If you are a business owner who doesn’t want to pay an extra premium, then the pay-as-you-go worker’s compensation is for you.
Pay-as-you-go worker’s compensation insurance is available in 46 states.
If you own a business in Washington, North Dakota, Wyoming, or Ohio, you won’t be able to use the pay-as-you-go method.
These states do not recognize the pay-as-you-go worker’s compensation insurance. Pay-as-you-go worker’s compensation has more pros than cons. It helps you maintain your annual budget and increase your monthly profits!