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Pay-as-you-go workers' compensation insurance
A pay-as-you-go workers’ compensation plan can make it easier for small business owners to obtain coverage while maximizing the cash that they have on hand.
What is pay-as-you-go workers' compensation insurance?
Pay-as-you-go workers’ compensation insurance is a type of workers’ comp insurance with flexible premiums that change throughout the year. These premiums are dependent on changes to your number of employees and your payroll data throughout a 12-month span.
Workers’ comp insurance is required in most states for businesses with employees. It may also be required for sole proprietors and independent contractors who work in riskier professions, such as construction and building design.
Workers’ compensation coverage protects your business and your employees from the healthcare costs and lost wages in the event that an employee suffers a work-related injury or illness.
Most regular health insurance policies are unlikely to cover these injuries, so without workers’ comp, either you or your employees could be stuck paying the medical bills out-of-pocket after a mishap.
How does pay-as-you-go workers’ compensation work?
With a traditional workers’ compensation plan, the premiums are based on your estimated annual payroll and your number of employees for the year.
With a pay-as-you-go workers’ compensation plan, you can obtain the same type of workers’ comp coverage available in a traditional plan, but with flexible premiums that can change according to how many employees you have in each payroll cycle.
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How much does workers' compensation insurance cost?
Pay-as-you-go coverage is adjusted each pay period based on payroll. How much you pay will vary depending on a variety of factors, including:
- Payroll
- Coverage limits
- Size of business and number of employees or subcontractors
- Location
- Industry and risk factors
- Claims history
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Your location impacts the cost of workers' compensation
The state where your business operates can impact the cost of your workers' compensation insurance. Below are some examples of different average workers' comp rates across the United States.
| State | Workers' comp insurance cost |
|---|---|
$62 per month | |
$54 per month | |
$38 per month | |
$46 per month | |
$42 per month | |
$49 per month | |
$45 per month | |
$43 per month | |
$58 per month | |
$52 per month |
Workers' compensation laws in your state
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What’s the difference between “pay-as-you-go” and a traditional workers’ compensation payment plan?
A “pay-as-you-go” workers’ compensation policy can give you the same coverage as a traditional plan, but using a different method of paying the premiums.
Traditional workers' compensation plan
With a traditional workers’ comp plan, an employer buys coverage with a lump-sum down payment, such as 25 percent of the employer’s estimated gross payroll wages, followed by monthly or quarterly premiums for the rest of the year.
At the end of a policy year, your insurer will conduct an audit to make sure you had the right amount of coverage for your state, and that you paid the right premiums.
Based on this audit, your insurer may give you a rebate for overpayment or a bill for underpayment of your workers’ comp premiums.
Pay-as-you-go workers' compensation plan
With a pay-as-you-go workers’ comp policy, your upfront payment is much lower, such as 10 percent of your estimated payroll. Your insurance premiums for the rest of the year would then be adjusted according to your real-time payroll figures for each pay period.
What are the pros and cons of pay-as-you-go workers’ comp?
One of the main benefits to pay-as-you-go workers’ comp insurance is that the initial down payment is likely to be much lower than a traditional plan. This makes it easier for small business owners to afford the policy without draining their bank account.
Benefits of a pay-as-you-go workers’ comp policy
A pay-as-you-go insurance coverage plan can benefit your business in a number of ways:
- Avoiding an upfront insurance deposit or payment
- Payments are automatically adjusted to reflect the most recent pay period wage data
- Don't need to adjust your policy if you hire or lose an employee
- The chances of being audited by your insurance company are lower because rates aren't based on estimates
- If you do face an an end of year audit, they are typically much easier with a pay-as-you-go plan because the insurance company will have received your actual payroll figures throughout the year
This can be especially helpful for businesses whose payroll size and number of employees rise and fall based on seasonal demand, as it can be hard to estimate your employee data for an entire year.
Disadvantages of a pay-as-you-go workers’ comp policy
A pay-as-you-go plan might not be available in your state if you’re required to purchase your workers’ comp coverage from a state-operated plan.
The states mandating these plans are:
Your payroll service provider might also have a limited number of insurance carriers they work with on workers’ comp which reduces your coverage options.
You’ll still face an audit at the end of your coverage period, and you could still face a premium adjustment based on the job classifications of your employees.
Keep in mind that your gross payroll data is only one aspect of your premium costs, as your insurance company also considers the type of work being done by each employee and their class codes.
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How to get a pay-as-you-go workers’ comp plan
Contact Insureon to see how we can help you with workers’ comp and other types of small business insurance. Our licensed insurance agents can answer questions you have about coverage options and the workers' compensation premiums your business may pay.
Complete Insureon’s easy online application today to compare insurance quotes from top-rated U.S. insurance agencies.
Once you find the right types of coverage for your small business insurance needs, you can begin coverage in less than 24 hours.
Updated: December 5, 2024
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