Pay-as-you-go

Pay-as-you-go (PAYGO) changes how workers' comp premium is collected, not what the coverage is. Traditionally the employer pays a deposit based on estimated annual payroll, then installments, then a premium audit after the year compares the estimate to actual payroll and bills or refunds the difference. Under PAYGO the employer reports payroll by class code each pay period or month, usually through a payroll-software connection, and the carrier bills the rate times that payroll.

Because the bill follows payroll, a seasonal contractor or a fast-growing company pays less when payroll is low and avoids a large deposit. Say a roofing firm estimated $400,000 of payroll but actually pays $550,000 (a hypothetical). On a traditional policy the extra $150,000 surfaces in the audit; under PAYGO the premium on it was paid as it accrued, and the final audit is smaller and less of a surprise.

Trade-offs are real. Payroll reports must be accurate and on time, because a missed report can trigger cancellation notices. Carriers may add a fee, and not every insurer or state offers the option. Rates and class codes are the same as on any other policy, so PAYGO does not lower the price per $100 of payroll. The guide on pay-as-you-go workers' comp covers eligibility, and premium audits: how they work and how to prepare explains the process it softens.