Workers compensation premiums are calculated by multiplying the rate by each one hundred dollars in payroll. Historically, workers compensation premiums were estimated in the beginning of the policy year; and audited for accuracy at the end of the policy year.
As a result of this estimate and audit process, sometimes a business would tie up capital on overpaid premiums to receive a return months later; and sometimes a firm would receive a large audit bill, followed by an increase in the then current year’s workers compensation.
Unless the business is very predictable, these audits were difficult to budget.
Pay as you go workers compensation contemplates this issue and offers an option to pay premium based on actual payroll. The business, or more often, their payroll service, sums payrolls in each class and either applies the rate or sends the payroll figures directly to the company for billing.
The business knows its workers compensation cost for that pay period immediately and with a great deal more accuracy. Budgeting is as easy as payroll budgeting since the two are tied together.
An audit will be conducted at the end of the year, but the effects should be much smaller.
Who should use pay as you go?
* Businesses with seasonal income and payroll so expenses tie to income more easily and
budgeting is easier.
* Businesses with large payrolls which benefit from the cash flow of this system.
* Businesses which assign payroll to different jobs to more easily tie payroll
expenses to specific sites.
At Mason & Mason, we work with several insurance companies that offer pay as you go Workers Compensation. If this is an option that appeals to you, give us a call. We can help you find a policy that provides comprehensive coverage that works for you.