What is Pay as You Go Workers Compensation and why might a Commercial Cleaning Company want to use it.
What is Pay as You Go Workers Compensation?
Pay as You Go Workers Compensation Insurance is an alternative payment option that allows commercial cleaning and janitorial services companies to pay their insurance premium monthly instead of in a lump-sum payment. This alternative payment option allows seasonal and cash-strapped businesses to get coverage in place at a much lower cost and to increase the accuracy of their payments by allowing the business to pay workers comp premium based on the actual payroll from the previous month.
How is Pay as You Go Workers Compensation Different?
A traditional workers compensation program requires a business to pay a portion of the premium up front just to get the policy in place. This amount is often 25% and some times as much as 33%. Depending upon the revenue of your business, this may be a substantial amount your business is required to pay just to get coverage in place. After making this large payment, the rest of the premium is paid in 9 monthly payments over the course of the last 9 months of the term. A Traditional Workers Compensation Insurance Policy determines your monthly payment based off of the estimated payroll from the previous year or an average of monthly payroll over the past few years. There are many factors that may make the man hours of your business considerably different from year to year. Pay as You Go Workers Compensation Insurance allows a business to prevent get a policy in place at a lower initial cost and increases the accuracy of the payment each month.
How can a Janitorial Services Company benefit from Pay as You Go?
Commercial Cleaning and Janitorial Services Companies benefit from a pay as you go policy in three main ways: less up front costs, more accurate monthly payments, and less risk of being audited mid-term.
Having a lower up front cost allows start-ups, cash-strapped, and seasonal cleaning companies the ability to get coverage in place and pay their premium throughout the year as they gain more positive cash-flow. Their may be a number of reasons why cash is tight within a business and pay as you go is a great way for businesses to get legally required workers comp coverage in place at a lower price then a traditional workers comp policy.
Because a pay as you go workers comp policy allows your business to partner with a payroll company to accurately pay your premium each month, there is less risk for a mid-term audit. With a traditional workers compensation policy the monthly payment is based upon an estimate of payroll from the previous year or the previous few years. This results in a business either over or under paying for premium throughout the year. If there is an underpayment, the business will owe the extra premium at the end of the term. If it appears that there is a significant underpayment in place, the insurance carrier may require a mid-term audit to adjust the payment. A mid-term audit takes your employees away from their daily routine to help the inspectors adjust the premium payment. This is time that is spent by your employees on activities that are not making the business profitable. The more accurate the premium payment is through a pay as you go policy, the less likely your business is to experience a costly mid-term audit.