Pay As You Go Workers Comp
Pay-as-you-go workers comp is simply an alternative way of making your premium payments. It’s not different insurance, and it doesn’t replace your workers comp insurance or your responsibility to pay premiums, collect/issue certificates of insurance from subcontractors, etc. Your coverage must still be provided through a state-approved workers comp insurance carrier or approved self-insured source. That said, there are compelling reasons for small businesses to consider the pay-as-you-go method of paying workers comp premiums.
NO DOWN PAYMENT. This is often quoted as the biggest benefit to pay-as-you-go workers comp: the ability to avoid a large, cash-flow-killing down payment up front. You can purchase a policy with little money down, and pay your premium in smaller amounts spread over the course of the year.
That can markedly improve your cash flow—especially when you compare it to traditional workers comp premiums, which typically require you to put down a hefty 25% deposit (based on your estimated annual payroll) and make several monthly installments thereafter. This can put quite a squeeze on your operating cash. Since most employers earn revenue throughout the year, it makes sense to spread an insurance premium payment over the course of the year.
SELF-AUDITING. Workers compensation insurance under the “pay-as-you-go” method allows you to pay your premiums based on a more accurate payroll period—that is, based on your actual payroll. (Premiums are based on a rate per 100 of payroll, just like traditional workers comp.) That can help protect you from audit exposure, because your premium is based on real-time payroll wages, not an estimate.