Pay-As-You-Go Worker's Comp Explained

Want to avoid the pressure of an auditor coming to your office every year to dig through your books? That's just one of the benefits of choosing pay-as-you-go worker's compensation insurance for your business.

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Pay-as-you-go worker’s comp insurance is the best option for every New York business.

Most business owners know what worker’s comp business insurance is. But they have no idea about pay-as-you-go worker’s comp insurance. What’s the difference?

With the traditional direct-pay worker’s comp, every year the insurance company guesses how much payroll you’re going to have for the year. Then your worker’s comp insurance carrier calculates your annual premium based on their guess, and they send you a bill.

You make a big upfront payment and make a few installment payments over the next couple of months, and you’re all paid up.

But here’s the kicker. Every year at the end of your policy period the insurance company has to send an auditor to your office. They make an appointment, give you a long list of documents you must provide, and then the auditor shows up and asks a lot of questions.

It’s very stressful. And all they’re doing is looking through all your payroll records and calculating the exact amount of your premium for the previous year.

Your worker’s comp premium is directly correlated to the amount of payroll. So, if the amount that the carrier guessed was less than your actual payroll you must pay the adjusted premium right away.

If what they guessed was more than your actual payroll—they’re not going to give you a refund—you just get a credit toward next year’s premium.

And you go through this painful process every year. There has to be a better way!

And there is. It’s called pay-as-you-go worker’s comp. With pay-as-you-go worker’s comp, every time you run a payroll; your payroll company sends a file to your worker’s comp insurance carrier.

Your insurance carrier calculates the exact amount of your premium for that payroll, and then they debit your bank account for your exact worker’s comp costs.

So, you’re paying the exact amount. So, there are no adjustments at the end of the year, and you’re paying a little bit at a time instead of paying it all upfront.

So, with worker’s comp pay-as-you-go—let’s say business is booming and you have more payroll, you’ll pay more for worker’s comp for that pay period.

On the flip side—let’s say COVID hits or business drops, and your payroll shrinks, then during that payroll period you’ll pay less for worker’s comp, and you didn’t automatically prepay already as you did in the direct pay method.

So, in summary, pay-as-you-go (PAYG) worker’s comp is an incredible cash-management tool for your business. It’s also a convenient and fair way to pay your worker’s comp premiums.

And probably the biggest benefit for most New York business owners is your insurance company already has your payroll records, so they don’t have to send an auditor to your office.

So, imagine that with pay-as-you-go worker’s comp you can eliminate the stress of having an auditor come to your office and spend the day looking through all your stuff.

There are two ways to get pay-as-you-go worker’s comp. The first way is to get pay-as-you-go through your insurance broker. I don’t recommend this method because it’s a manual process.

Every pay period somebody has to manually upload all your detailed payroll information to your insurance carrier’s website. How much regular pay, how much overtime pay did every employee earn?

It’s way too much work! And doing this manually lends itself to errors.

The second method is to let your payroll company send an electronic file every pay period to your insurance carrier. That’s the way I recommend you do it.

This way it’s on autopilot, it’s automated, it’s accurate, and it just happens.

So, ask your payroll company if they can help you enroll in pay-as-you-go (PAYG) worker’s comp. If you have any questions or need our help, call Baron and ask for Bill Elkins.