When it comes to workers compensation, not all policies are created equal especially when it comes to cash flow. Prior to the introduction of Pay-As-You-Go workers' comp policies (PAYG), most businesses were forced to estimate their annual wages for the year to calculate the estimated monthly payment due for the policy period. While this archaic method may have given business owners a flat monthly expense to plan around, it left any variance in wages to be corrected at the time of the annual audit.
During years of strong growth, these variances required small business owners to set aside funds to pay the increased premium at a time when any available funds are needed to finance the growth in business. Alternatively, if the company experiences an unexpected slow down in business, they could find themselves overpaying the policy premium during a time when every dollar is needed just to fund payroll. With some much uncertainty around installment-based policies, it is obvious why Pay-As-You-Go policies have grown in popularity over the past couple years.
To learn more on this topic, make sure to register for our webinar on June 9 at 12:00 p.m. Eastern Time, with Matthew Fulton and Lynda Artesani, "Surviving Your Next Workers’ Comp Audit." You can register here.
Benefits of Selecting a Pay-As-You-Go Policy:
No Down Payment Required:
Most installment policies run on a 10-month cycle and require an initial down payment, which may be difficult for cash strapped businesses. Since PAYG policies are directly tied to your wages paid, they are not based on estimated payroll and do not require down payments to get started.
Eliminate Paperwork:
When you tie your workers compensation policy directly to your QuickBooks Online Payroll all the wages are automatically reported for you eliminating the need to login into portals to report the monthly wages for each employee.
Streamline the Audit Process:
With so much importance placed upon the year end audit, the time spent preparing for an audit was much more time intensive. Before the audit could even begin, it often required 3-4 hours to collect the required documents and fill out the online questionnaire. With PAYG policies, the requests for information can be handled in as little as 20 minutes.
Improved Cash Flow:
Prior to PAYG policies, everything came down to the annual audit to determine how much was still owed to balance out the estimated payments against the actual wages paid. With policy payments tied directly to the wages paid by the company, the cost of the policy reflects the wages paid to employees. If business slowed down, the policy premium during that same period would also be less.
With so many clear benefits to switching over to a PAYG policy the only question left is when should you introduce the opportunity to switching over to QuickBooks Online Payroll with a PAYG workers compensation policy?
Throughout the year there are numerous opportunities to help your clients review the existing workers compensation policy to ensure that have the best coverage and payment structure possible for their company. Below is a list of opportunities to introduce the conversation.
Top 5 opportunities to introduce PAYG WC to clients:
During the onboarding process:
Whenever we bring on a new client, we request a copy of their existing workers compensation policy as part of our preliminary review process. This provides us an opportunity to familiarize ourselves with their current payroll and how they categorize different employees. If we find that employees have been inaccurately classified, it presents us with a great opportunity to shine right out of the gate.
Quarterly subcontractor review and annual 1099 processing:
Included in our quarterly review process for our clients is a subcontractor review. This allows our team to evaluate multiple times throughout the year if we have all the necessary Certificates of Insurance required to avoid additional charges for subcontractor wages. This also provides us a great opportunity to start a discussion on switching their policy provider over to Intuit’s PAYG policy through AP Intego.
Significant changes to payroll:
Since all policy premiums are tied to wages paid throughout the year, it is always best practice to review your client’s workers compensation policy any time there is a major change in payroll. In some states like California, WC class codes are dependent on the wage per hour and may need to be reported differently if an employee receives a raise. Additionally, if a company increases their workforce dramatically during the year, it may be necessary to notify their current policy provider if they are not on a PAYG plan.
Monthly Financial Review Meeting:
Your monthly review meeting introduces the perfect opportunity to discuss how their current workers compensation policy is impacting the company’s cashflow. If they are currently on an installment policy, point out the 10-month cycle and the final catchup payment that may be hitting their business at the worst time possible.
Annual Audit Preparation:
While it may seem obvious to discuss the policy during the annual audit, it is often a missed opportunity to remind your client of the benefits of a PAYG policy as well as an opportunity to streamline your process for future audits.
Workers Compensation may not seem like an opportunity to help improve your client’s business, but it just might be the tip that earns you a lifetime client. You never know what you might find during that initial review of their policy, it may just improve the company’s cashflow, or you might find errors that could save the company $6,500.00 or more. Either way introducing the conversation early on with your clients will always be appreciated and help establish you as a trusted advisor.
To learn more on this topic, make sure to register for our webinar on June 9 at 12:00 p.m. Eastern Time, with Matthew Fulton and Lynda Artesani, "Surviving Your Next Workers’ Comp Audit." You can register here.
Author Bio: Matthew Fulton is Co-Founder and CTO of Parkway Business Solutions where he uses his passion for technology to create time-saving tools for accountants, and bookkeeping solutions to fit the needs of the modern small business owner. Recently entering private beta, his current project, Vendorsync provides bookkeepers and accountants the most efficient bank import process for QuickBooks Desktop by eliminating over 50% of the data entry requirements.