Pay-As-You-Go Workers' Compensation Explained
For many of your clients, traditional workers’ compensation insurance is one of the strenuous parts of doing business and can often introduce headaches and uncertainties to your clients’ operations.
Fortunately, businesses now have the option to forgo a traditional workers’ comp policy and opt for a more flexible pay-as-you-go workers’ comp structure. Switching your clients to a pay-as-you-go workers’ comp structure can provide them with more stability and increase the value you provide.
What is Pay-As-You-Go Workers’ Compensation?
Pay-as-you-go workers’ comp coverage allows businesses to pay their premium each time they process payroll. This helps them spread their liability throughout the year, unlike traditional workers’ compensation that requires businesses to pay a lump sum based on their estimated annual cost of liability.
Benefits of Pay-As-You-Go Workers' Compensation
Small and medium-sized businesses, and brokers, can benefit from a pay-as-you-go workers’ comp structure in the following ways:
Creates Consistency and Stability
With pay-as-you-go, your clients can work in their premium payments as a known monthly cost of doing business. Instead of one initial, large payment that may be in excess or inadequate after a year-end audit, businesses have complete visibility into the amount they pay monthly.
Monthly premiums also free up capital for business owners to put toward other critical needs. Having extra cash could be the reason a business can afford to hire a new employee instead of overworking its current employees. Or for a trucking business, it could be the difference between buying a new truck when they need it or having to wait.
Scales with the Business and Eliminates End-of-the-Year Audits
In addition to creating consistency, pay-as-you-go workers’ comp also gives businesses more flexibility as they scale. With traditional workers’ comp, a company that lost 20 employees in a given year would need to wait for their year-end policy audit to recover the excess funds they put toward liability costs.
On the flip side, if a business gains 20 employees, a year-end audit will reveal that they owe money to cover the increase in premium costs.
With pay-as-you-go workers’ comp, there’s no need for end-of-year audits, as a businesses’ monthly payment depends on their payroll. This also alleviates pressure on brokers to keep tabs on how much or little their clients’ businesses grow, which is the only way to forecast a year-end premium bill.
Improves Brokers’ Client Retention
The broker market has become more competitive — state funds are expanding their service offerings and rates are going down. To retain clients, brokers need to offer more than a policy — they need to become trusted partners for their clients to rely on.
Because brokers offering a pay-as-you-go workers’ comp option provide clients with consistency, transparency, and scalability, brokers can improve their retention rates and build a loyal book of business that considers them a vital partner.
Are There Any Downsides to Pay-As-You-Go Workers' Compensation?
The pay-as-you-go workers’ comp structure provides a win-win scenario both for brokers and their clients. As long as businesses provide the right information and enter the partnership with the right intentions, there are no downsides to using the plan.
What Companies Benefit the Most From Pay-As-You-Go Workers' Compensation?
Small and medium-sized businesses in any industry can benefit from a pay-as-you-go workers’ comp plan. However, it is particularly beneficial to construction businesses or businesses that have to submit bids to win new business.
Because workers’ comp is a known cost to them, they can factor it into their bid knowing that it will not change throughout the year. For instance, if they bid on a project in January to start working in July, the cost will still be the same. This helps them bid accurately and ensure they charge an amount that'll cover the job.
Switching Your Clients to a Pay-As-You-Go Workers' Comp Policy Through BBSI
Switching a client to pay-as-you-go workers’ comp still requires sending a normal underwriting submission to a workers’ comp carrier. In addition, when brokers work with a PEO, like BBSI, to facilitate the new policy and ensure a seamless transition, they will also need their clients to move their payroll to myBBSI, BBSI’s proprietary payroll system. myBBSI allows business owners to streamline their HR activities, calculate and process payroll in minutes, and utilize reporting tools to uncover new insight into their business data.
By signing up for a pay-as-you-go workers’ comp policy through BBSI, businesses also get access to a local team of professionals who focus on HR, risk and safety, staffing and recruiting, and business strategy.
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Disclaimer: The contents of this white paper/blog have been prepared for educational and information purposes only. The content does not provide legal advice or legal opinions on any specific matters. Transmission of this information is not intended to create, and receipt does not constitute, a lawyer-client relationship between BBSI, the author(s), or the publishers and you. You should not act or refrain from acting on any legal matter based on the content without seeking professional counsel.
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