What are my workers' comp options?
- Buying a Policy
So, what are your workersâ comp policy choices?â
âThere are three main ways to purchase a workersâ 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 workersâ comp payment is adjusted monthly based on payroll.
- The state fund model is when a business purchases workersâ comp directly from the state, often because insurance is difficult or impossible to obtain from a private insurer.
Weâll explain all three:
The traditional model
This is the standard. To buy workersâ comp the traditional way, youâll give the insurer some projections of how you think your business will go. Mostly, theyâll want to know how big you expect your payroll to be and the kind of jobs your employees will do during the upcoming year.
âFrom that information (and other factors like location, industry, and safety record), the insurance company will assign you a premium for the year. Thatâs what youâll pay. â
Donât know whatâs 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.
âIn short, the traditional model is: Get one workersâ 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, youâll integrate your workersâ comp insurance directly with your payroll. That means that your workersâ comp payment will automatically adjust as your payroll does. (Nice, right?) â
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âThis is a great way to go if you want to avoid a big adjustment at the end of your workersâ 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. â
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âKeep in mind: this is a pretty modern option, so itâll mostly be available from tech-forward companies.
The state-provided model
This model often comes into play if youâve had a lot of claims or have a very high risk business and canât get private insurance. Often, the prices for state workersâ 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. (Hereâs a list of state funds, if youâre interested.)â
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âAlso, if you live North Dakota, Ohio, Wyoming, or Washington, you live in a state monopoly, which means that you can only buy workersâ comp from your state. Makes for an easy decision.â
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