What is Workers Comp As You Go

What is workers compensation insurance?

Workers compensation insurance is a type of insurance that covers employees who are injured at work or while performing work related duties. This type of insurance is required by most states for business to carry in order to cover their workforce. The insurance is used in the case of injury to cover things like:

  • Lost wages
  • Medical bills
  • Rehabilitation
  • Job retraining
  • Disability benefits
  • Funeral services

Workers compensation insurance removes liability from the business in case of injury. The employee waives their right to hold an employer accountable when injury occurs and receives payment for the above items like lost wages and medical bills.

How is workers compensation insurance paid?

Workers compensation insurance is 100% paid by the employer. A business pays into an insurance company, which is responsible to pay out any lost wages, medical bills, etc. to the employee. Businesses can pay into workers compensation insurance in one of two ways:

  1. Traditional workers comp
  2. Workers comp pay-as-you-go

Each business pays a different premium for workers compensation insurance. The final amount is based on the business’ gross paid wages and employee job classification codes.

Difference between traditional and pay-as-you-go.

Once you have the correct rate for your business and the correct codes for each of your employees job types, you are ready to calculate your premiums. When you have determined how much you will need to pay, you have two options to decide between.

Traditional workers compensation insurance is paid in lump sum payments at the beginning of the year based on your estimated payroll. You will need to do an estimate for your payroll in order to determine how much to pay. Adding or removing employees from your payroll can change your rates and affect the amount of workers comp you should pay. You will not know this at the beginning of the year and that can result in you paying the incorrect amount. At the end of the year, your insurance provider will perform an audit to determine if the amount you paid upfront is enough, in which case another payment maybe required, or too much, in which case you may receive money back.

Pay-as-you-go insurance is paid out in each payroll cycle. This type of payment may be beneficial for small businesses in a few ways. Most importantly, it is a more accurate way to pay as the amount is determined based on the actual payroll amount, not an estimate. When you hire or fire an employee during the year, your payment will change and directly affect each payroll cycle. This way, there will be no over or under payments at year end. These payments are smaller and will give your business more cash flow in the short term. In addition, pay-as-you-go payments are automatically paid in each payroll run, ensuring that you will not miss a payment.

Which payment option is better for my business?

While there maybe certain advantages to using the pay-as-you-go model, each business situation will be different and it may not always be the best choice. Some states require that your workers compensation insurance be purchased through the state. And even in states that allow you to purchase through private insurance companies, not all companies offer pay-as-you-go. At the year end, either option will require you to pay the same amount in workers compensation insurance. Do not hesitate to contact us if you need assistance with workers compensation insurance.

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