Does Pay-as-you-go Prevent a Workers' Comp Audit? | Facts Explained!

When managing insurance premiums in Columbus, Ohio, businesses must provide insurers with payroll estimates to determine upfront costs at the beginning of the year. This often results in a year-end audit, which can complicate operations and adversely affect finances.

Fortunately, the pay-as-you-go workers' compensation model helps eliminate the guesswork. It is an arrangement where the insurance premium is based on the actual payroll instead of estimates, allowing small businesses to obtain coverage and maximize the cash they have on hand. Our team can consult on pay-as-you-go vs. traditional workers’ comp insurance as well.

At Larrimer & Larrimer, our top-rated workers' compensation attorneys have over 90 years of experience helping injured workers overcome the pitfalls associated with the complex legal system and getting them the compensation and justice they deserve. We can help answer questions such as How does pay-as-you-go workers’ compensation work?

We understand how challenging it can be for small businesses to provide coverage to their employees, which is why we've created this guide on pay-as-you-go insurance, its benefits, and whether there is a need for a year-end audit. Let's get started!

How Do Employers Pay Workers' Compensation in Columbus, Ohio?

Most employers in Columbus, Ohio, are legally required to purchase workers' compensation for their employees, which is a policy that covers medical bills and a portion of lost wages in case of a work-related accident.

Traditionally, businesses pay annual premiums to insurers, who calculate the insurance cost based on the estimated payroll for the year. In addition to that, there are other elements that affect the policy rates, including industry classification and experience modification factors.

The way employers pay for workers' compensation can have a significant impact on their finances. While businesses need to estimate total salaries at the start of the policy to determine premiums, a lot can change over a period of 12 months.

A higher-than-expected payroll can result in additional charges, while overestimating wages may lead to delayed refunds. Both scenarios can negatively impact a company's bottom line.

The Challenges Associated with Traditional Workers' Comp Insurance

With traditional methods of paying for workers' comp insurance, employers face several challenges, some of which include the following:

Cash Flow Issues

Small businesses often experience financial worries, and paying a hefty upfront annual premium can adversely impact their cash flow situation. It could lead to a delay in payments to key stakeholders and even push back growth plans.

Inaccurate Estimates

Whether it's paying for unexpected costs or waiting for a refund, an inaccurate estimate of a company's payroll can cause discrepancies during year-end audits. This can significantly affect a business's operations.

Administrative Burdens

The traditional way of paying for workers' comp insurance involves estimating payroll, managing annual premium payments, and conducting year-end audits. This can be incredibly time-consuming, placing a huge administrative burden on the team.

Understanding Pay-as-you-go Workers' Compensation

To offer more flexibility and reduce the financial uncertainty associated with the traditional way of paying for workers' comp insurance, businesses can choose an alternative model to calculate premiums, which is known as pay-as-you-go. It is an innovative, flexible, and accurate approach to managing workers' compensation. According to these workers comp attorneys in Columbus, the pay-as-you-go model is becoming increasingly popular among small and mid-sized businesses looking to improve cash flow and reduce audit surprises.

Instead of paying hefty premiums that are calculated using estimates at the start of the year, the pay-as-you-go model requires businesses to pay insurance costs based on the actual payroll figures.

How does this plan work? When businesses choose this alternative over the traditional workers' compensation insurance model, they give insurers access to their real-time payroll data. The insurer bases the premium on the actual reported figures each time the company runs payroll, immediately adjusting for seasonal fluctuations and staff changes.

What Are the Benefits of Pay-as-you-go Workers' Comp Insurance?

Pay-as-you-go workers' compensation insurance provides employers with several benefits, including the following:

It Improves Cash Flow

Since businesses pay insurance premiums based on actual payroll data rather than estimates, no large upfront payments are required. This model helps spread the insurance liability across the year, helping improve a company's cash flow and making it easier for the employer to manage its finances.

Here's an example of how pay-as-you-go workers' compensation works:

Suppose workers' comp coverage costs around $0.80 per $100 in employee wages, and a small business has five employees with a total yearly payroll of $225,000. This brings the annual premium up to $1,800.

With traditional workers' comp insurance, a business must pay $1,800 upfront at the beginning of the year. This payment can affect the company's operations and impact growth.

If a business chooses the pay-as-you-go model, it doesn't need to pay the premium upfront. Instead, the company can spread the $1,800 across the year, making incremental payments every time it runs payroll.

It Reduces the Financial Burden

Traditional workers' compensation insurance often results in overestimated or underestimated payroll, leading to year-end adjustments. The insurer may either offer a refund or request an additional payment.

Estimating payroll at the beginning of the year can be challenging. An employer may hire additional employees or reduce staff throughout the year, which can impact insurance premiums.

On the other hand, the pay-as-you-go model uses the actual payroll data, meaning businesses only pay what they owe. This can improve the company's budget and reduce financial discrepancies during year-end audits.

It Simplifies the Payment Process

When businesses provide insurance companies with access to real-time payroll data, it can help streamline administrative tasks.

With pay-as-you-go workers' comp, there is no need for manual calculations. This reduces the risk of human error, saves time, and lightens the burden on a company's HR department.

Does Pay-as-you-go Prevent a Workers' Comp Audit?

Pay-as-you-go workers' compensation insurance doesn't prevent a year-end audit. Businesses need to understand that this isn't a different type of policy but an alternative to paying hefty upfront premium payments.

With traditional workers' compensation insurance, employers make a large down payment at the beginning of the year, followed by monthly or quarterly premium payments. At the end of the year, the insurer conducts an audit to determine the right amount of coverage and the total paid by the business. Based on this, the insurance company may offer a rebate or bill for underpayment.

Insurers will still need to conduct a year-end audit if a company chooses the pay-as-you-go workers' comp. They do this to verify payroll and determine the accuracy of the class codes. It also helps identify whether subcontractors received the right coverage throughout the year.

An insurance company may conduct the year-end audit on the phone or request details over email. It may also visit the business for further correspondence.

How Can a Business Shift to a Pay-as-you-go Workers' Comp Insurance?

Since pay-as-you-go workers' comp requires integration with the existing payroll system to pay a single bill each pay period, employers must discuss this type of arrangement with their payroll providers. They can help guide the company more on such services.

Also, not all insurance providers offer a pay-as-you-go arrangement. Businesses looking to move away from the traditional way of managing workers' compensation premiums should contact their insurers to discuss the availability of a pay-as-you-go model.

What Should Employers Look for When Choosing Workers' Comp Coverage?

The reality is that insurance companies can be difficult to work with, which is why employers should do research before purchasing coverage for their employees. Here are a few key factors to consider when choosing an insurer:

• The reputation of the insurance company

• Integration with the business's existing payroll service provider

• The quality of customer support

• Documentation of certificate of insurance

Does Pay-as-you-go Workers' Comp Affect an Injured Worker's Right to Obtain Compensation?

Since pay-as-you-go workers' compensation is the same insurance policy but with a different payment structure, it doesn't affect the injured worker's right to recover compensation in case of a work-related accident.

That said, insurers are notorious for creating obstacles throughout the claims process. They may argue that a pre-existing condition is to blame or dispute the severity of the worker's injuries to reduce or deny a payout. As a result, some victims accept lowball settlement offers that may not fully cover their medical expenses.

Working with an experienced workers' compensation attorney can help protect the rights of injured workers. They have the skills to assess the circumstances surrounding the case, build a strong claim, and fight the insurers to ensure fair compensation.

Larrimer & Larrimer Remains Committed to Fighting for Justice and Compensation for Injured Workers in Ohio!

Employers in Ohio have disregarded the law for too long. Some fail to maintain valid workers' comp insurance for their employees, while others have been violating labor laws to make a quick profit. When accidents happen, they coerce the injured workers into dropping the case or accepting a lower settlement offer.

If you've suffered injuries due to a work-related incident, you can rely on Larrimer & Larrimer for the best legal representation in Columbus, Ohio. We have the skills, expertise, and resources to handle workers' compensation claims and can get you the help you need during this difficult journey.

Call us to schedule a free consultation with an experienced workers' compensation attorney to discuss your case and learn more about your legal options!