Having Workers Compensation insurance for your business is not only great to gain peace of mind for your organization, but it is also typically required by law. Some states do exempt businesses with five or fewer employees from the Worker’s Comp requirements, but in most states, those with even one employee will require Workers Compensation insurance.
For a small business just starting out, having Workers Compensation insurance will ensure that you and your employees are protected. This is important, but it does bring with it the unfortunate downside of high premiums costs.
If avoiding large lump sum insurance premiums sounds good to you, then as an alternative you can look into pay-as-you-go Workers Comp insurance.
If you want to know how much workers' comp insurance will cost, one step you can take is contacting an insurance company and asking for a quote.
Insurance companies look at many variables and use somewhat complex methods when determining costs for a specific business, so it is a good idea to shop around, get multiple quotes, and even run a rough calculation for yourself.
The basic formula for estimating workers' comp cost for an employee is as follows:
(Annual employee payroll / 100) X Workers' comp insurance rate = Estimated cost
To calculate the cost of workers' comp for an employee, follow these three steps:
1. Determine the employee's class. 2. Figure out their premium rate for their class code. 3. Determine your annual payroll for each employee.
An employee's rate is determined by which class code they fall into, which is based on the type of business you have and the circumstances around the work they perform. You can look up your employee's class code and the state's advised rate or ask the insurance company for their rate for that code.
The rate is given per $100 of payroll, so you adjust for that by dividing your employee's total annual payroll by 100. Try to be as accurate as possible when projecting the employee's total payroll and take into account any predicted changes throughout the year.
As a business owner, it's important that you have workers' comp insurance for your employees. If you have any questions about insurance coverage, reach out to us at CoverWallet at (646) 844-9933 to talk to one of our insurance experts.
Typically when you invest in Workers Comp, you will need to pay large payments that cover your liability costs. This can be a huge burden for a business that is starting out, and even a high cost to any business in general, especially those with a large number of employees.
Pay-as-you-go workers compensation is essentially a set of installments. It allows you to make payments on your premium each time you do payroll. This allows your Workers’ Comp liability to be spread between the year, and you in turn will undergo fewer upfront costs.
The amount you actually pay with each payroll is also based on the payroll that you run. Therefore if you lose employees or hire more talent, your liability will change and you will only be paying for who you have hired.
Pay-as-you-go Workers’ Comp is a great option for most businesses and is open to businesses in every state besides North Dakota, Ohio, Washington and Wyoming.
Large annual payments can put a dent in your business budget and affect cash flow. Depending on different factors that could include where your business is located, the industry and how many employees you have, Workers Comp can be extremely expensive.
To put it into perspective, general coverage rates range from $0.74 – $2.74 per $100 of employee wages.
Let’s take an example and say that your coverage is on the lower end, and costs $0.80 per $100 of employee wages. You have ten employees who will earn a combined total of $450,000. Divide the total wages by $100 to get $4,500. Next, multiply $4,500 by the Workers Comp rate, which will get you to $3,600. This will be the annual cost of your Workers Compensation insurance.
With pay-as-you-go, instead of paying $3,600 at the beginning of each billing cycle, you can pay it in installments each time you run payroll. This will ease the financial burden for any business, especially those starting out or struggling to break even.
Since monthly premiums are quite literally pay-as-you-go, you can hold on to your capital longer until it needs to be paid each month. This is especially helpful for businesses that need cash flow or have a lot of overhead costs.
Standard Workers Compensation insurance requires premiums that are solely based on estimates. This means that each year you must guess what your projected payroll will be, and pay it upfront.
Knowing exactly how much Workers Comp that you will need for an entire year is very difficult to predict. You might decide to hire or fire employees which would both affect your rate. At the end of the year, if your estimates were inaccurate, then you will either pay more or receive a refund from your insurance provider.
The benefit that pay-as-you-go workers compensation insurance provides is that there will never be any guesswork, and you will never need to estimate. Each payment will be accurate and exactly what you owe with each payroll. This avoids paying more or less than necessary and helps you to pay accurately and only for what you need.
When running a business you have plenty of things on your mind and many tasks to be completed. The last thing you need is to think about making payments.
With pay-as-you-go workers comp, your policy provider automatically collects your premium each time you pay your payroll. Instead of writing a check or submitting a payment, your provider will simply debit your bank account and you won’t need to think twice.
This not only simplifies your responsibilities as an employer, but it also confirms you won’t make any mistakes when submitting payment. Simply put, you will never miss a deadline.
Accurate calculations minimize the risk of penalties. You should be worrying about maximizing profit when running your business, not worrying if you accounted for the two new employees and loss of another.
With pay-as-you-go monthly workers comp, instead of worrying about being audited at the end of the year, you can focus on paying taxes as scheduled and running your business properly.
Pay-as-you-go workers comp insurance is integrated with payroll services. This means you can use Intuit Quickbooks, Gusto, Intego or any other payroll provider that offers pay-as-you-go services.
This means that while you are finishing up your payroll every week or two weeks, you can also be paying your workers’ compensation insurance premium while getting the best rate for your insurance. Consolidating the bills you need to pay has never been easier or at a lower rate with a pay-as-you-go plan.
Every state besides Texas needs to have Workers Comp, and every other state (besides the four monopolistic states) require Workers Compensation insurance. This means you most likely need to have workers comp, but you do not need to pay your premium upfront.
Pay-as-you-go is a great option for most businesses, but there are specific industries that may benefit even more than others. This might include businesses that specialize in cleaning such as janitorial services, commercial or institutional construction companies who hire new workers regularly, food service businesses such as full-service restaurants, as well as healthcare or landscaping service-based businesses.
Furthermore, these service-based businesses would especially benefit from pay-as-you-go workers comp services mainly due to the fact that these businesses often have a rotating employee list. Using pay-as-you-go services would make it stress-free to hire and let employees go as you choose.
Being an essential business, or being able to work completely from home, can be beneficial in times of crisis. However, even the most essential businesses can be impacted financially by unforeseen events that will cause you to find new ways of being able to survive and overcome some devastating circumstances. In times of crisis there will be ways to cut down on costs and increase your cash flow in every area of your business, but what about insurance? Pay as you go business insurance, specifically Workers Compensation, can be very beneficial in navigating hard times.
Crisis management is the first thing on everyone’s minds when an unforeseen event occurs. You might be asking questions like how can our business sustain this crisis? Will this hurt our bottom line? Will we have to let employees go? Can I afford to still pay my vendor contracts? All of these things will create stress in times of crisis but it is critical that you stay calm and endure these hardships as best as you can. One way to help with your cash flow and keeping as many employees on the payroll as possible is by switching to pay as you go Workers Compensation.
Being able to have more cash flow can even help you to make money by investing the leftover profits if you are able to. This can help you continue to educate your employees on any necessary procedures and policies. Plus, it leaves you room to invest in new equipment if you need to. If during a crisis you need to allow your employees to work from home but they don’t have the necessary equipment to do so, investing your own money can help in the long run if it allows them to continue to work. By utilizing the pay as you go option that some insurance companies offer, it will allow you to have those funds available by paying for only the actual payroll you paid and not what you think you might pay. Plus, if you do end up having to lay off some employees, you won’t have to make any changes to your existing policy. Additionally, when audit time comes, it should come out even so you won’t have to worry about having a huge invoice to pay, which is especially appreciative in times of crisis.
The opposite can also be true. When a crisis is finally over, depending on the type of business you operate, your production may have to increase heavily to make up for some downtime if you had any. That could, in turn, mean that you have to go on a hiring spree. If you have taken advantage of the pay as you go option for your Workers Compensation insurance policy, you can pay for those employees when they are hired and paid rather than a year from now when an audit is completed. This means that your cash flow will continue to be helped throughout the entire year.
When a crisis happens, your mind is going to be in so many places as you try to stay in business. Having to worry about paying your insurance premiums is going to be the last thing on your mind and having the pay as you go Workers Compensation option can help with that too. Once you have reported the payroll that you have paid for the current period, whether weekly, bi-weekly, or monthly the insurance company will automatically deduct the premium that is due.
The beauty of it all is that there will be no guessing. You don’t have to guess what the annual payroll will be, and how much you are going to owe or get back at audit time. You submit your payroll that you paid for the period and the system will calculate the amount due and let you know what it is. Automated payment options can help you have peace of mind. Not only will your bills be paid and your employees protected, but you can focus your energy elsewhere on how you will endure the crisis and come out on top once it is all over.
Are you confused about how you might benefit from a pay-as-you-go Workers’ Comp insurance plan?
Does it seem enticing but you don’t quite understand how it all works?
Are you somewhat sure that you want to avoid paying high premiums upfront?
If avoiding high premiums and the extra headache of paying Workers Comp in a lump sum is something you are interested in taking action on, then take advantage of our expertise at CoverWallet. Simply click on the “Get Quotes” button or that will give you more information, and solve your doubts.