Pay As You Go Workers Compensation
Pay As You Go Workers Compensation
Pay-As-You-Go Workers Compensation (WC) is a handy way for companies to pay WC insurance premiums. Employers do not have to make payments in advance. They make payments each pay period.
How does Pay-As-You-Go Workers Compensation work?
During each payroll period, the employer has to offer a report for each employee. The report shows the deduction of the worker’s compensation. It also shows the staff member’s classification code. Afterward, the payroll service records the payment showing a deduction on each report. The same report includes taxes, wages, and other deductions.
Then, the employer sends the report to the insurance company. Next, the insurance company adds up the WC premiums based on the report from the business. The WC insurance company informs the employer how much to pay. Afterward, the employer makes an electronic funds transfer payment to the WC insurance company.
Why use Pay as you Go Workers Compensation?
Employers find it more useful because they do not want to deal with an audit on an annual basis. Using this method does not need a full review because the sum reflects the right amount. Plus, the audit takes up too much of their time and is expensive. Other reasons companies like this method:
• Reduces cash flow: With the Pay as you Go choice, the calculations show the total for the pay period. Employers end up paying less. The estimated premium for traditional WC premiums can be high. Companies may not have enough cash on hand to meet payroll and also pay the WC premiums.
• Eliminates estimates: In the past, employers spent hours creating worksheets that include employee wages. They would then assess the WC premiums from the report. With the Pay as you go system, there is no need for any estimates. The employers only pay the total amount for the current period.
• No advance payment: Employers do not have to make advance lump sum payments based on estimates. They make payments in real time, easing their cash flow.
• Accuracy of budgets: When making budget projections, accountants have a more accurate figure to use. There is no need for estimates.
• Save time and money: Employers spend too much time and money on annual audits. With the Pay as you Go system, they do not have to pay auditors or lose work time putting together the information.
• No premium adjustments: The state estimates WC premiums in advance. So, they end up refunding the difference after an audit. With the Pay as you go WC, there is no need to make adjustments to the premium. The numbers are actual figures based on earnings.
What are the drawbacks of Pay-As-You-Go Workers Compensation?
• Complexities involved: The process involves rules many people do not understand. Employees have different classes, and the premiums differ based on employee grouping. Based on what the employee does, he could be at a higher risk. For example, an employee who works in construction would have a much higher risk.
• Pay more for switching carriers mid-stream: Businesses will pay more if they swap policies before the end of the policy term. The account will change back to the traditional package until its renewal.
• Minimal down payment: There is still a down payment with the Pay-As-You-Go plan. The amount equals 30-days projected premium.
• Inability to control the program: The WC board combines the premium with gross earnings, taxes, and other deductions. As a result, the employer loses the ability to keep control of the WC program. Plus, it makes it difficult to figure out the real cost of the WC insurance.
• Fewer choices of insurance carriers: Not all insurance companies have a Pay-As-You-Go plan.
• Insurance Certificates: The employer still has to collect insurance certificates from subcontractors. The same goes for the firm. They have to issue insurance certs to other businesses for whom they work.
• There is still an audit: The WC Board still reviews the company’s records. They have to check the classification of workers and uninsured subcontractors.
What is the difference between traditional Workers Compensation and Pay as you Go?
• Pay-As-You-Go WC Insurance: The calculation of the WC premium reflects an actual cost of a single pay period. It is not an estimated amount. The down payment is smaller than the traditional number. There are no billing fees. The audit is less detailed than the traditional plan. Payment of premiums takes place during the pay cycle.
• Traditional WC Insurance: Traditional WC insurance requires employers pay an estimated amount. They base the estimate on quarterly earnings. The WC Board asks for a huge deposit up front and offers little payment terms. Employers have to pay billing fees. The audit is intensive and requires significant adjustments. Businesses have to write checks for premiums due.
Employers pick the Pay-As-You-Go option because of the convenience to them. They do not have to undergo a full audit. Plus, the choice is less expensive. Businesses also find it helpful because it does not create a burden on their cash flow. Despite all the benefits of the Pay-As-You-Go plan, there are some drawbacks. The company still has to undergo an audit. Classifying workers for the policy is not a simple task. There is still a small down payment due. Employers lose control over the program. The WC Board combines the costs of earnings and taxes with the insurance premiums. Moreover, there are fewer choices of insurance carriers.
To find out more about Pay-As-You-Go Workers Compensation, please contact Zuma Payroll & Processing