If you carry workers’ compensation insurance, you are aware of its many cash flow headaches. From the 20% down payment, to the often, whopping, lump sum additional premium due at end of the policy period. It hits many businesses right in the wallet. If you have ever said, there must be a better way when writing one of those large checks, then you are right.

Workers’ Compensation – “Pay As You Go”

A few insurance companies and payroll services have teamed up to offer automatic direct payment of workers’ compensation insurance premiums as part of regular payroll processing called pay as you go. The treatment of premiums is similar to the way payroll taxes are handled by the payroll company. Premiums are calculated based on the actual payroll using a complex process that considers the workers’ classifications and remitting them to the insurance carrier with each payroll. The result is that many insurance carriers will forego a down payment and there will not be any audit surprises at the end of policy period. To top it off, the workers’ compensation auditor may not even pay you a visit. Instead, they would communicate directly with the payroll service to pick up any needed reports or tax returns to complete their audit.

Pay as you go is also a great cash management tool for a business that does not have a regular payroll. This especially comes in handy here in south Florida’s seasonal business atmosphere or for any growing business. When income is greater and labor cost is higher, the premium will increase, conversely during slow, off-season periods, premiums will be much lower.

To utilize this service, your payroll must be processed by an independent outside company, not internally, and you must use a payroll service that has an agreement with your workers’ compensation carrier. This may very well be the reason a payroll service is worth using. If you already use a payroll service, ask whether they have any such agreements.

Payroll processing and carrying workers’ compensation are vital to any business. Outsourcing to experts is not only cost efficient, but in this case, it will relieve large cash flow pressures. Once these functions have been outsourced to a reputable company, you can sit back and concentrate on your real business.