Is Workers Comp Better With a Professional Employer Organization or is Pay as You Go a Better Option?

We sometimes gets requests asking about the benefits of a Professional Employer Organization (PEO) and their Workers Compensation Coverage, versus a stand-alone pay as you go workers comp plan. Since we make it easy for small business owners to find a PEO, we believe we have the information you need to make that decision. In fact, the PEO is one of the first to offer a pay as you go option, which will help you manage your cash costs over time. Since the Professional Employer Organization and pay as you go plans are very similar, we will compare and contrast conventional workers compensation with pay-as-you go coverage.

Simply put, traditional workers comp coverage will require a small business owner to make an upfront deposit, based on an estimate of their gross annual wages. The company will send quarterly information to the insurer, who then calculates the bill and requests payments. Since these are all estimates, however, an audit is required, including a reconciliation process that will help bring the numbers together. Unfortunately, if the deposits and quarterly estimates do not cover the total amount due, the company is mandated to reimburse the carrier at the end of the year. This could potentially be a substantial cut to the small business person's cash flow. Interestingly enough, payments that extend beyond the balance may roll over into next years beginning balance; nice for the carrier, bad for the business owner.

Therefore, organizations reviewing their options should take a close look at pay as you go workers comp plans. This very flexible model offers a premium payment plan, that lessens upfront costs and spreads payments over time. But not just that; no deposit requirements and no mandated audits whatsoever, because the business owner will submit information directly after a payroll cycle, a report of the actual debit amount. Estimates are eliminated, and so is worrying about reconciling the differences. In fact, if you outsource your payroll to a Professional employers organization, they will deduct the premiums at the same time as you run a final payroll of that cycle. Truthfully, the biggest benefactors are organizations with seasonal or highly fluctuating payroll, because estimating payroll is challenging; however, all businesses can benefit, because end of year payment surprises are eliminated.

PEO companies not only provide you with pay as you go workers compensation but also outsourced benefits and a variety of resources that help you comply with employment related issues and administrative paperwork. In fact, many businesses under 100 employees should be able to significanly reduce their in-house administrative burden through the use of PEO's, which provides additional value over traditional and pay as you go workers comp plans.

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