Introduction
Pay As You Go is a relatively new method for workers’ compensation. This new method is different from the traditional approach and has some advantages which we would discuss in this article.
Both approaches mainly differ in terms of the calculation of the premium cost of your policy and the time when you are billed with it. Let’s take a closer look at how these both processes work:
Traditional Workers’ Comp
The total annual wages of the employer’s company are estimated at the start of the policy year and then the employer has to make an upfront deposit. The insurance company bills the employer quarterly based on that estimation.
The discrepancy between the estimated cost and the real cost is audited by the insurance company at the end of the policy year. According to the audit, the insurer refunds to the employer (in case of extra payment) or bills the employer (in case of less payment than actual).
Pay As You Go Workers’ Compensation
In this new approach, the employers do not need to pay a heavy upfront deposit and the premium is calculated with each payroll. Therefore, no audit needs to be done by the insurer at the end of the policy year.
Pros and Cons of Traditional and Pay As You Go
The main advantage of the traditional method is the stable process of payment throughout year and lesser burden of administrative tasks on the company. The major disadvantage is the discrepancies in the process and the heavy upfront amount in the beginning or bill at the end. Pay As You Go reduces the upfront payment and does not need an audit at the end. The administrative tasks of the company can rise which can be handled by PEOs.
Overall Comparison
Traditional Workers’ Comp
Large upfront premium
Policy updates required for new employees
Audits required
Heavy costs and bills either at start or end
Pay As You Go Workers’ Comp
No upfront premium
Automatic premium calculation
Minimize audits
Saves money and time
