Business owners are responsible for making sure their companies have all the insurance policies necessary. While those policies will vary by state and industry, the costs can add up quickly. For some policies, insurance providers offer flexible payment plans.
Many providers are now offering businesses pay-as-you-go billing solutions. This policy won’t be available for every form of insurance you need. However, selecting pay-as-you-go billing for workers compensation insurance and other eligible policies may be an effective way for your business to save money.
Counting the Costs of Workers’ Comp Insurance
In recent years, businesses and their employees have pushed for new and more cost-effective alternatives to traditional insurance policies. One common choice is pay-as-you-go workers’ compensation.
Workers’ compensation provides employees financial help if they are injured on the job. Insurance companies determine workers’ compensation rates using a number of factors. Classification codes, your experience modifier, the number of employees you have, and payroll hold the most weight in determining your workers’ compensation premium.
Classification codes determine how likely your employees are to have a workers’ compensation claim depending on your industry’s physical risks. Some states have their own classification systems, but many use the codes created by the National Council on Compensation Insurance.
Experience modifiers compare your business's previous claims to others in your industry. Your overall compensation premium is determined by multiplying your class code, experience modifier, and payroll divided by $100.
Depending on your industry, you may find your business facing high workers’ compensation premiums. If your business involves high-risk environments and activities, a pay-as-you-go billing solution may save you money in the long run.
Pay-as-you-go billing uses your real-time payroll to calculate your workers’ compensation insurance. In contrast, traditional payment models rely on your estimated annual payroll. Many businesses are switching to the pay-as-you-go model to eliminate the conventional, outdated model’s up-front costs.
Since pay-as-you-go billing uses real-time payroll figures, it’s more accurate than the traditional model. That allows businesses to eliminate the chances of paying too much if your payroll was lower than what was initially reported. It can also prevent you from going through a premium adjustment process if your payroll ended up being higher than you reported.
Pay-as-you-go workers’ compensation doesn’t change your policy plan; it merely changes how you make your premium payments. Your pay-as-you-go payment plan can, therefore, better align with your actual payroll dates. This billing plan thus allows more flexibility when you pay your premium.
Unlike traditional plans, you can work with your payroll and tax administrator to pay one bill each pay period. Pay-as-you-go allows you to combine your workers’ compensation premium with your monthly payroll. That gives you more flexibility to decide when you pay your premium.
Tips for Lowering Your Workers’ Comp Premium
Even if your provider doesn’t allow pay-as-you-go billing options, there are still a few ways you can lower your workers’ compensation premium. If your insurance company does allow pay-as-you-go, you can still take a few steps to save your business even more money:
- Understand Your Rate– If you don’t already know what they are, determine your class code and experience modifier. Explore the premium formula to determine ways to lower your premium.
- Prioritize Safety– The safer your business is, the less likely accidents are to happen. Fewer accidents can lower your premium.
- Create a Return to Work Plan– Having a return to work plan ensures that injured employees have mental and physical support when they are back on the job. Assigning injured employees tasks that won’t further aggravate their injury will also lower the chances of reinjuring themselves on the job.
- Look Into Accidents– When accidents do occur, investigate what caused it. This process can show you easy ways to make your environment safer for employees or correct behaviors that caused the accident.
- Explore State-Sponsored Programs– Some states will offer businesses safety programs with the incentive of a lower premium. Check with your insurance provider if any safety programs exist in your state.
- Review Your Payroll– If your policy is based on an estimated annual payroll, check to ensure your payroll estimate isn’t too high or too low. Wrong estimates can result in higher up-front costs or an audit down the road.
Flexibility for Workers’ Comp Coverage
Switching to pay-as-you-go for your workers’ compensation can save you from paying unnecessary up-front costs. This model uses your current payroll, not an estimated one, which can also decrease the risk of owing on your policy if you underestimate payroll costs. If your insurance provider doesn’t offer pay-as-you-go billing, you can still explore other options to lower your premium.