How Does Pay-As-You-Go Workers' Compensation Work?

Workers comp insurance is a legal requirement for almost all employers throughout the US. People who are injured on the job are entitled to financial support from their employers, and it is the company's responsibility to ensure they have adequate workers comp insurance coverage.

Paying workers' compensation premiums can be challenging for some businesses, but it is not optional. Luckily, there are solutions employers can use to handle the insurance expense more affordably and provide the coverage their employees are entitled to. Pay-as-you-go workers' compensation is one such solution. our team can also answer questions like Does pay-as-you-go prevent a workers' comp audit?

Pay As You Go Workers Compensation Insurance: How It Works

So, how does pay-as-you-go workers' compensation work? With traditional workers comp insurance, businesses pay a large upfront sum based on payroll estimates- usually estimated annual payroll). These large down payments for business insurance premiums can hinder cash flow and may not equate to accurate premium payments.

On the other hand, pay-as-you-go workers comp insurance is paid incrementally with each payroll period. The figure is based on actual payroll figures for that period rather than predictions.

Understanding Pay-As-You-Go Workers Comp Coverage

A pay-as-you-go workers comp solution is not a separate workers' compensation policy. It does not replace a company's workers comp insurance, nor does it remove the need for it. All businesses must purchase workers' compensation insurance through a state-approved provider. The only difference is how the premium payments are made.

How To Get Set Up with Pay-As-You-Go Workers Compensation Insurance

When a business has settled on a plan (purchased from licensed insurance agents and in line with state requirements), it can enroll in a pay-as-you-go payment solution.

Instead of paying a large sum at the beginning like they would with a traditional payment plan, they set up an alternative payment schedule.

There are two main ways this works:

• Companies report their payroll data directly to the insurance company, which will then work out what payment is owed for that pay period.

• The business can integrate their workers' comp insurance premium payments with their payroll service and automatically pay workers' compensation insurance with the payroll cycle.

Reporting To the Insurance Company

If a company chooses to report directly to the insurance provider, they must send the total wages paid each time they run payroll. These figures will automatically calculate the correct workers' comp insurance expense for the coverage period.

Most carriers that offer a pay-as-you-go plan allow for this method of processing, but the exact steps for employers may vary slightly. It is important for businesses to find out exactly what is required of them when setting up the plan.

Integrating with Payroll

The more common choice for employers following a pay-as-you-go workers comp plan is to integrate their payments with payroll. In this situation, the insurance payments essentially become a payroll expense and are paid automatically to the insurance provider via the payroll company at the same time as wages.

It works well because the payments are calculated based on payroll data for that period. Payroll companies will take the figures and quickly pay the insurer the correct amount compared to the calculated wage payments.

All the employer needs to do is what they would always have done for payroll. It keeps all the money going out related to employees in one place and makes the whole process far simpler and more convenient.

Something to bear in mind, however, is that automating workers comp premiums through the payroll system reduces the employers' access to payment information. It takes it out of their hands but limits easy access.

What Are the Benefits of Pay As You Go Workers Comp?

While pay-as-you-go workers comp insurance solutions don't make the insurance any cheaper, it does offer a few different benefits.

Better Cash Flow

Big premium deposits can put a lot of strain on businesses with limited cash flow. A pay-as-you-go solution reduces (sometimes even removes) these lump sum payments and makes the premiums much more manageable for a small business.

Not having a large payment each year (that may not even be the right amount) takes some financial strain off of businesses, which is arguably the most common reason employers choose the pay-as-you-go payment option for their premiums. According to these workers comp lawyers in Columbus, improved cash flow is one of the most cited advantages for small businesses adopting this model.

More Accurate Workers Comp Payments

Traditional workers comp insurance is based on estimated payroll figures, not actual payroll data. As such, it is almost never exactly accurate. By paying as you go, companies ensure they only pay what they actually owe.

This benefits them in more ways than one. It avoids unnecessary overspending but more importantly, ensures accuracy in reporting- reducing workers comp audit risk.

Automate Payments

Having workers comp insurance automatically deducted on a pay-as-you-go system is more convenient and efficient. If the pay-as-you-go solution is arranged through the payroll service provider, employers have almost no involvement in the process. It removes the risk of missed payments, saves time, and keeps everything correct.

What Does All This Mean for Injured Workers?

Whether an employer pays their workers' compensation insurance through a traditional plan or pay-as-you-go, employees are still entitled to the same coverage. The insurance carrier must still be approved by the state and the policy must still be in line with regulations for the protection of workers and their compensation rights.

Get the Financial Support and Compensation You Are Entitled To with Larrimer & Larrimer

If someone is injured or becomes ill because of their job, they are usually entitled to financial support for lost wages and medical bills through their employer's workers comp insurance. The ins and outs of claiming workers' compensation for a personal injury can be complex, which is why it is important to have an expert in workers' compensation law.

Arrange a free consultation today with leading workers' compensation attorneys in Columbus, Ohio. Larrimer & Larrimer fights for injured workers and is dedicated to getting them the compensation they deserve when they deserve it.