PROS
No Large Deposits
You may have heard that Work Comp Rates in CA are among the highest in the nation. Even a business with a handful of employees could pay tens of thousands each year. With carrier deposits usually ranging from 100% (in extreme cases) to 10%, it’s a considerable amount of money to put out at one time. Pay-As-You-Go programs often require a $0 deposit, thus leaving you with a much healthier cash flow.
Accurate Premiums
Exceeding your business growth goals is fantastic! Though, if you’re not careful, growth can have negative side effects. If you aren’t vigilant in reporting payroll increases (or if you don’t have a broker that does this) to your Workers’ Comp Carrier, your growth could leave you with a very large audit bill at the end of your policy term. Of course, we’d always choose growth, but this could put a bit of a damper on the celebration.
Avoid Tedious Audits
The words “avoid” and “audit” should pretty much sum this up for us. Pay-As-You-Go’s claim to fame is in the promise that employers will not have to jump through hoops each year and can, instead, spend time doing just about anything else.
CONS
Less Flexibility
Some people just like what they like. Perhaps you have strong cash flow and would like to treat overpayment as a savings account that you can cash out each year like a tax refund. Maybe you’d like to keep conservative projections and pay lower monthly payments to help with Cash Flow. Whatever the situation, Pay-As-You-Go definitely gives you less flexibility in this area.
Admin Fees
Some (not all) Pay-As-You-Go Workers’ Comp Programs come with a management or admin fee to cover the costs of reporting payroll each pay period. While these fees are usually minimal, it is an expense that would not otherwise exist.
Extra Up-Front Work
Pay-As-You-Go programs require just a little extra up front work compared to traditional arrangements. This can be very minimal depending on the program you use and it eliminates the work of an audit on the back end. That said, you could consider this as a positive (see Avoid Tedious Audits above), but some people would prefer to do as little work as possible when it comes to purchasing Workers’ Comp Insurance, putting this in the negative column.