How to Better Manage Cash Flow with Workers’ Comp Insurance

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Pay-As-You-Go Workers’ Comp Insurance Offers Small Businesses Choice and Payment Flexibility

By Chris Keith

Every business with employees in Kansas is required to have workers’ compensation insurance. What many business owners and finance managers may not know is that there is a choice in how workers’ comp insurance is administered. In a COVID-19 environment when every dollar matters, exploring choices in workers’ comp insurance can help businesses keep more of their money, maintain predictable monthly payroll costs, and simplify payroll reporting.

The traditional process of applying for workers’ comp insurance requires a company to estimate its wages for a year, make an upfront deposit, and after eight months, an audit is performed to determine actual wages and to calculate the correct amount of insurance premium that is owed. The business could end up getting a refund – or owe money. There is a better way: automated pay-as-you-go workers’ comp insurance.

 

Workers’ Comp Insurance: Different Options for Policy Holders

Workers’ comp insurance, nationwide, is highly regulated. Even though it’s required, most businesses consider it an add-on on top of other general liability policies. They go along with a pre-determined package, which often involves an upfront deposit, with the remaining premium divided over the course of eight months. This is beneficial in the sense that the business can budget for their premiums over the course of eight months. The problem with this approach, other than the difficulty that the deposit can present, is it’s based solely on an estimate of wages and takes no consideration of a business disruption such as COVID-19 or an increase in wages in good times.

The deposit and eight months premiums will most likely not match the actual premiums owed for the year. Yes, there might be a refund if wages are less than what was estimated, but the business won’t see that money until the following year, after the annual tax return is filed. The flip side is that if the business experiences growth throughout the year, then at the end of the eight months, the business could get hit with another large, lump sum payment.

Regardless of whether the business is entitled to a refund or will owe money, the entire process still requires an audit. Payroll reports and quarterly filings for the year will need assembled and organized. It is a time-intensive process that also requires staff allocate their time to something besides running the business.

Pay-As-You-Go Workers’ Comp Insurance

There is an easier, more convenient way to pay workers’ comp insurance. Pay-as-you-go policies spread the payments out throughout the year and eliminate the need for a large down payment. Estimating yearly wages is unnecessary since the monthly premium is already based on actual wages. Plus, year-end audit risk is drastically reduced, which means significant time savings in preparing payroll reports and tax filings.

Adams Brown’s pay-as-you-go workers’ comp service is a streamlined process without any extra hassle. Businesses interested in switching to a more predictable, automatic pay-as-you-go scenario simply need to complete a change of broker of record form. Their existing policy will convert to a different insurance broker, and the new broker will take over the servicing of any claims.

Our provider can shop around the best workers’ comp policy among more than 20+ A rated carriers, including Liberty Mutual, Chubb, Berkshire Hathaway, and others. In this way, businesses get to choose the best option for their situation.

Is Pay-As-You-Go Workers’ Comp Insurance Right for Your Business?

Although this type of insurance policy works well for any type of business, there are three categories of employers that can see the most benefit.

  • Seasonal employers, who may find it difficult to estimate yearly wages due to fluctuations in payroll
  • Employers that had to reduce their workforce unexpectedly due to COVID-19 or other circumstances
  • Employers that increase their payroll throughout the year, either through planned growth or unexpected surges in business

Businesses can change payroll providers at any time of year, regardless of when their current policy expires. The biggest consideration to make is with the carrier. Although Adams Brown’s provider will shop around different carriers, a business may need to keep its existing carrier to avoid early termination fees.

Adams Brown clients that already use pay-as-you-go workers’ comp insurance report a high level of carrier responsiveness and satisfaction with any employee claims. For questions about any outsourced payroll service, including pay-as-you-go workers’ comp insurance, reach out to us anytime.