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Pay as You Go

The logical way to pay workers' compensation premiums

This story appears in the April 2001 issue of Entrepreneur. Subscribe »

If you carry workers' compensation coverage, you probably know about additional premiums-that often whopping lump sum due at the end of your policy period when the insurer conducts an audit to calculate what your final premium actually should be. Paying that lump sum can be a significant cash-flow headache, especially for growing or seasonal operations that can't precisely predict what their payrolls will be a year in advance. But there is a solution.

A growing number of insurance companies and payroll services are teaming up to offer automatic direct payment of workers' compensation insurance premiums as part of regular payroll processing. The treatment for premiums is similar to the way taxes are handled, calculating them based on the actual payroll using a complex process that considers job classifications, claims records and other factors, and then remitting them with each payroll run. The result is that you won't have any audit surprises or large lump sum payments either upfront or at the end of the policy period, says Robert King, director of workers' compensation product development for Fireman's Fund Insurance Co. in Novato, California. You also won't have any refunds due to inadvertent overpayments.

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