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.
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