Workers’ compensation is state-mandated insurance that protects your business when an employee gets sick or injured on the job. They receive benefits to cover medical bills, job retraining, pay, and other expenses while away from work. Unless the incident was due to gross negligence on your company’s part, the employee could not sue you. Without the worker’s comp, damages from a lawsuit could bankrupt your small business. Even if the lawsuit weren’t successful, the legal fees might have the same effect.
For this reason, having workers’ comp is in your best interest. However, rather than paying your premium in one lump sum, you may want to opt for pay-as-you-go workers’ comp. Here’s why.
What Pay-as-You-Go Workers’ Comp Is
Pay-as-you-go workers’ comp insurance has risen in popularity as premiums continue to increase. The policy lets you make premium payments every time you run payroll. This spreads out your liability throughout the year rather than all at once. Instead of handing over a one-time payment to cover the estimated cost of your liability, the amount you pay is based on the payroll you run. Because you pay what you owe when you owe it, your premium liability changes as you add or lose employees.
Benefits of Pay-as-You-Go Workers’ Comp
Opting for pay-as-you-go workers’ comp provides a variety of benefits. For instance, rather than harming your business cash flow and straining your budget with a 25% premium payment and subsequent monthly payments, you can make incremental payments throughout the year. Because premiums for traditional workers’ comp are based on estimates for what your payroll is projected to be for the year, you may end up with a refund or request for further payment at the end of the year.
With pay-as-you-go workers’ compensation, you pay the money owed based on your payroll. This allows for more accuracy, so you avoid over- or underestimating your premiums. Your policy provider can automatically collect your premiums each payroll so they’re always covered. You no longer have to be concerned about audits at tax time or end-of-the-year reconciliation.