When you secure a Workers’ Compensation policy, premiums are determined by a company’s annual estimated payroll, which often ends up being inaccurate. It leaves many business owners needing a refund for overpayment or having to pay extra when they close out the year; especially service-based businesses with fluctuating staff, such as restaurants and cleaning services. To avoid these unexpected premium changes, your clients can opt for a pay-as-you-owe Workers’ Compensation policy.
How Do Pay-As-You-Owe Payment Plans Work?
A pay-as-you-owe plan allows businesses to pay their Workers’ Compensation premium based on their actual payroll each pay period, rather than paying up front on their annual estimated payroll. The premium is calculated at the time of payroll processing and automatically paid directly to the insurance carrier.
3 Benefits of a Pay-As-You-Owe Policy
1 – The Ability to Budget Effectively
The initial amount owed is reduced because there is no costly, up-front deposit; the payments are spread more evenly throughout the year. A business will also pay accurate premium amounts based on their actual payroll, ensuring there is no under or overpayment needing to be balanced at year’s end.
2 – It’s Automated and Accurate
Premium amounts are automatically calculated and paid whenever a business runs payroll, whether that’s bi-weekly or monthly. Business owners do not worry about having to pay with a check by a certain date.
3 – It Simplifies the Audit Process
Typically, because a business paid on their predicted 12-month payroll, at year-end they have to reconcile their Workers’ Compensation premium with an audit. Once they figure out the exact amount of their payroll for the year, they can then figure out the total they should have paid for their insurance coverage. If they paid under that amount, they’ll owe money, but if they paid over that amount, they’ll get money back. This time-consuming process is eliminated with a pay-as-you-owe policy.
What Are the Drawbacks?
Really, there are none! Pay-as-you-owe plans reduce inaccuracies and eliminate expensive surprises without any drawbacks like additional service fees or increases in the premiums. It provides all the coverage of a traditional Workers’ Compensation policy while providing more predictability and less stress on your clients’ businesses. Their employees are 100% covered at all times.
Is It an Option for Everyone?
Businesses of all sizes can purchase pay-as-you-owe Workers’ Compensation policies. Typically, commercial businesses can purchase these policy plans through their insurance carrier. However, in the four monopolistic states (ND, OH, WA, and WY), businesses are required to purchase insurance from the state. If your client is in one of these states, a pay-as-you-owe policy may not be an option if their state does not offer it.
Are your Workers’ Compensation clients ready to reduce unnecessary upfront premium deposits and time-consuming audits? Risk Innovations partners with several industry-leading Workers’ Compensation carriers with pay-as-you-owe policies. Contact us for more information or to get started with a quote.