The Connection Magazine AIM MUTUAL Fall 2019 - Page 8

WORKERS’ COMPENSATION Why Should Businesses Consider Pay-As-You-Go Workers’ Compensation? WHEN I talk to my small business clients about their pain points around various forms of insurance, one of the things I hear most often is the responsibility of making that big annual payment for workers’ compensation. Especially for businesses that are in an early growth stage, that lump-sum estimated payment can be a major strain—a challenge that’s doubled if you have to make an additional payment to make up for shortages at the end of the year. Of course, every business has to pay workers’ comp. But many companies, particularly small businesses where cash flow is crucial, have realized pay-as-you-go is a more effective approach. Traditionally, businesses pay one up-front annual premium for workers’ comp; then an audit at the end of the year determines if they’ve overpaid or underpaid. With pay-as- you-go, instead of one annual payment, you pay your insurance premium through your payroll checks every pay period based on the actual number of employees and hours worked. If a worker files a claim, the workers’ comp payments will automatically adjust each payroll period. Why is this such a good idea for many small businesses? Two words: cash flow. “Cash flow is the number-one most important thing for many small businesses,” says John E. Dustin, president and founder of J.E.D. Insurance, a broker partner of A.I.M. Mutual. By paying workers’ comp every pay period, a business can eliminate that large down payment and instead spread the pay schedule evenly throughout the year, in the process freeing up cash to invest in other areas of the business. “Particularly for a business that is cyclical or seasonal,” Dustin adds, “it shores up what you’re paying, so that you’re not overpaying— or underpaying and stuck with a large bill at the end.” Switching to pay-as-you-go allows a business to see more consistent income statements throughout the year and reduces the chances of a headache-inducing end-of- year audit. I recommend that all of my clients at least consider pay-as-you-go workers’ comp. Of course, it’s not the right solution for everyone, and there are a couple of key things to keep in mind. “Pay-as-you-go does require someone to upload the payroll each pay period,” says Dustin. “If a company doesn’t have a CPA or payroll company to do that, or someone to do it in-house, then you can end up in a bad situation.” For some companies that have small teams and consistent payroll throughout the year, one annual payment may still be the most effective solution. As with all things insurance, the most important thing is having a dedicated broker who takes the time to understand the company’s specific needs and find the solution that’s right for them. ABOUT DREW SCHILDWACHTER DREW SCHILDWACHTER, Partner and Chief Operating Officer of ConnectPay, has over 20 years of experience in management, business solutions, and strategy building for small to mid-sized businesses. At ConnectPay, he has focused his deep knowledge of driving business owner success to help build a new kind of payroll model that is based on connectivity and partnership, forging networks with local brokers and advisors that payroll clients trust. Drew is working to lay a business foundation around payroll for the betterment of every client and the web of vendors they touch. 8