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November 16, 2011

Workers' Compensation Is More Than A Payroll Calculation

Summary:

If you like the idea of pay-as-you-go, but want to have the flexibility of working with a local agent, find a payroll company that works with local insurance agents.

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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.

Workers’ compensation is more than simply a payroll tax calculation. It is a no-fault insurance policy, meant to cover workers for work place injuries and provide them with an income if they lose time due to their injuries. In most cases, employer’s rates are determined by the type of work their employee’s perform and their actual losses compared to other companies performing the same type of work.

This “experience modification” can vary dramatically and if not properly managed can have a huge negative financial impact on a business for years. Having a local agent (rather than someone handling your workers’ compensation from a distant call center) that can be proactive on these claims could help manage this exposure much more effectively and help control your future cost.

The payroll company may only present carrier options that offer pay-as-you-go solutions and not necessarily those offering the lowest annual premiums. Any cash flow benefits of no large deposit may be offset by higher premiums throughout the year. A local agent may have access to a larger number of carrier markets and can offer you a number of alternatives, both traditional and pay-as-you-go.

If you like the idea of pay-as-you-go, but want to have the flexibility of working with a local agent, find a payroll company like Payality that works with local insurance agents. This might give you the best of both worlds by easing the administrative burden of payroll while getting the services of a local professional agent. You might not only save money this year but also minimize the future cost of workers’ compensation as well.

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