November 16, 2011
The challenging economy continues to be a drag on many company's financial resources. Cash flow pressures are causing companies to come up with ways to reduce expenditures and preserve capital. Among these measures is the trend to pay for workers' compensation on a pay-as-you-go basis.
Pay-as-you-go offers a number of benefits for clients. Because the premiums are received consistently, many insurance companies are waiving the large upfront deposit. In addition, clients pay premiums each pay period based on actual wages, not a fixed or stipulated amount. Audit surprises are generally minimized as well because premiums are paid throughout the year based on actual payroll not an estimate.
Clients generally liked the idea of pay-as-you-go but lacked the payroll systems to easily integrate the reporting with the participating carriers. To fill that gap, large payroll companies jumped in to provide this solution, but with one caveat: the client had to abandon their current agent relationship and transfer the relationship to an insurance agency owned by the payroll company.
On the surface, it seems to make sense to combine the two with one company. After all, workers' compensation is a percentage of payroll, much like payroll taxes, so why not have the company that handles the payroll taxes do this as well? Unfortunately, some companies have learned the hard way that this arrangement hasn't always been to their benefit.