What are my workers' comp options?
So, what are your workers’ comp policy choices?
There are three main ways to purchase a workers’ comp policy:
- The traditional model is when a business gets a price for the whole year based on a payroll projection and other factors.
- The pay-as-you-go model is when a workers’ comp payment is adjusted monthly based on payroll.
- The state fund model is when a business purchases workers’ comp directly from the state, often because insurance is difficult or impossible to obtain from a private insurer.
We’ll explain all three:
The traditional model
This is the standard. To buy workers’ comp the traditional way, you’ll give the insurer some projections of how you think your business will go. Mostly, they’ll want to know how big you expect your payroll to be and the kind of jobs your employees will do during the upcoming year.
From that information (and other factors like location, industry, and safety record), the insurance company will assign you a premium for the year. That’s what you’ll pay.
Don’t know what’s going to happen this year? Just give them your best estimate. At the end of the year, your insurance company will conduct an audit of your payroll and job classifications and adjust your premium accordingly. You may pay a little more at that point, or you may get a refund if you paid too much.
In short, the traditional model is: Get one workers’ comp price based on expectations. Get an adjusted price at the end of the year based on what actually happened.
The pay-as-you-go model
With pay-as-you-go, you’ll integrate your workers’ comp insurance directly with your payroll. That means that your workers’ comp payment will automatically adjust as your payroll does. (Nice, right?)
This is a great way to go if you want to avoid a big adjustment at the end of your workers’ comp year. Since the size of your payroll is the biggest factor in the size of your premium, electing to pay-as-you-go will help you avoid any surprises at the end of your contract.
Keep in mind: this is a pretty modern option, so it’ll mostly be available from tech-forward companies.
The state-provided model
This model often comes into play if you’ve had a lot of claims or have a very high risk business and can’t get private insurance. Often, the prices for state workers’ comp are pretty high because state funds tend to insure the riskiest businesses. However, some state insurance funds try to compete with private insurers, so this option might be worth checking out. (Here’s a list of state funds, if you’re interested.)
Also, if you live North Dakota, Ohio, Wyoming, or Washington, you live in a state monopoly, which means that you can only buy workers’ comp from your state. Makes for an easy decision.