As an employer, you understand the need for worker’s compensation and may have heard of the term “pay as you go” workers comp. So, what is it? Is this something you need to consider? Pay as you go workers’ compensation insurance is set up so to calculate and make premium payments each time you run payroll.
Traditional workers’ compensation insurance policies estimate the assumed payroll for the year and require a large initial deposit payment, followed by estimated payments during the year. Typically, traditional policies require an audit at the end of the year to ensure the premiums paid covered your actual payroll paid out.
To understand the difference, let’s start with the basics.
Workers’ compensation insurance is required by most states and covers employees when they get injured on the job. When a covered claim is filed, the injured employee receives benefits to cover expenses such as:
When an employee accepts these benefits, they waive their rights to sue for the injury or illness incurred on the job. Additionally, workers’ compensation benefits are issued on a covered claim regardless of who is at fault.
However, restrictions do exist. A claim is not valid if:
Generally, employers can purchase workers’ compensation from a private insurance carrier of their choice. It is important to note that while most states require employers to carry this insurance some allow employers to opt out depending on workforce size. Meanwhile, employers in North Dakota, Washington, Wyoming, and Ohio must purchase their policies directly from the state.
The Pay as you go policies allow you to pay premiums based on the current, actual payroll. While traditional policies will quote you an annual premium based on the assumed total payroll for the year. They typically will audit your policy yearly, and if it is discovered that your payroll was higher than assumed, you would owe them the difference.
Deciding what type of policy widely varies on your specific needs. Some employers may be better off paying a varying amount with each payroll run than others. Additionally, not all insurers provide pay as you go policies ultimately limiting your choice of company quality and coverage.
Moreover, both types of policies will charge you based on your risk exposure. They just vary in the way that they structure the policies and what kind of coverage and payment options they will offer you.
Ultimately organizations should weigh all of their options diligently when making the choice on what type of policy suits them. We always encourage organizations to speak with a trusted professional or partner when making important decisions like these.
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Contact us today to see how we provide compliant and efficient payroll services for cannabis businesses like yours.
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This article provides general information and shouldn’t be construed as legal or HR advice. Since employment laws may change over time and can vary by location and industry, please consult a lawyer or HR expert for advice specific to your business. You can also contact Payroll Systems to inquire about our HR support services.