Workers’ comp is a necessary and important cost of doing business today.
When the words “workers’ comp” are spoken, an agent is likely to hear a variety of responses and possibly even some groaning sound effects. After a brief conversation and some probing questions, a good agent can gain enough insight to cure the stomach churning. If a client is new in business or has really good experience, there should be no reason for them to be in “workers’ comp pain”. If they are, it could be that they are not on the best payment plan possible for their business. The three most common payment plans are: Standard Installments, Pay-As-You Go and Self-Audit.
Standard installments are the way workers’ comp has always been done. The client estimates the payroll that they will have in each class code and the carrier generates the quote based on those estimates. From there, a carrier will usually offer several options: annual payments, quarterly payments, 10 payments or possible even 12 equal payments if you are willing to use ACH. Do you see a problem with this method? It is 100% based on ESTIMATES! At the end of the year, the policy terminates and there is a subsequent audit. If your estimated payrolls were less than what you used, you will owe the carrier a lump sum. If your estimates were higher than the payroll you actually used, you basically gave the carrier an interest free loan for the course of the policy period plus the time it takes them to refund your money after the policy expires. Overall, this is not a great payment plan.
Pay-As-You-Go has gained a lot of popularity with clients because it integrates directly with their payroll provider. With pay-as-you-go, the payroll company inputs the information from the declarations page of the policy and then collects the exact amount of money due each week when the payroll is processed. Then, at the end of each month, they send the payment to the workers’ comp carrier on the client’s behalf. Sound good? Not so fast! It is not uncommon for the payroll company to misclassify new hires, make mistakes in the entry of the basic information or even pay the wrong amounts to the carrier. All of these issues lead to an audit event. Some payroll companies may also charge for this service. Another common issue with Pay-As-You-Go through a payroll company is that they use their own carriers which do not have safety rewards or dividend plans available for the client. In addition, there is very limited claims support or training available to the client, if any.
Self-Audit has evolved over the years and is a great solution for any client. Today, you can start a workers’ comp policy for less than $200 down. Then, like pay-as-you-go, you only pay on the premium you truly owe. Audit periods can be monthly or they can be as frequently as weekly. It is up to the client how often they want to report. At the end of the pay period (or month) the client logs in, enters their payroll information and makes the payment directly from the web portal. Not only are they paying to the penny, they are not giving up the representation of a well-qualified agent in order to do so. Clients no only get the claims service and training that a good agency can deliver, they can also choose from a variety of carriers that are willing to give them safety incentives in the form of dividends on their policy for good performance.
If a client is stuck in a workers’ comp rut and just doesn’t understand why they always owe the insurance company money, the information above is valuable. Of course, contacting an agent that is well-versed in the nuances of each of these payment plans for a professional opinion is always the best course of action.