For most construction companies, Pay-As-You-Go Workers’ Compensation is one of the best ways to manage workers’ compensation costs because premiums are based on actual payroll rather than estimated annual payroll.
Here are the biggest benefits:
1. Improved Cash Flow
Instead of paying a large deposit and monthly installments based on estimated payroll, premiums are paid as payroll is processed.
Benefit:
- Lower upfront costs
- Frees up working capital
- Better for growing or seasonal contractors
2. More Accurate Premiums
Traditional workers’ compensation policies estimate payroll at the beginning of the policy term. If estimates are wrong, you may owe a large additional premium after the audit.
With PAYGO:
- Premiums are calculated using actual payroll each pay period.
- Reduces surprises at audit.
3. Smaller Year-End Audits
Since payroll has already been reported throughout the year:
- Less paperwork
- Fewer audit disputes
- Smaller audit adjustments
4. Ideal for Seasonal Contractors
Construction payroll often changes due to:
- New projects
- Layoffs
- Weather
- Overtime
- Subcontractor usage
PAYGO automatically adjusts as payroll changes.
5. Better Budgeting
Workers’ compensation becomes a variable expense tied directly to payroll.
This allows contractors to:
- Price jobs more accurately
- Estimate labor costs
- Track profitability by project
6. Helps Growing Contractors
If payroll doubles during the year:
- Traditional policies often require large additional premium payments.
- PAYGO spreads those costs over the year.
No large unexpected invoices.
7. Lower Deposit Requirements
Many PAYGO programs require:
- Little or no down payment
- Lower initial cash commitment
This is especially valuable for:
- New contractors
- Small businesses
- Fast-growing companies
8. Easier Payroll Reporting
Most PAYGO programs integrate with payroll providers such as:
- ADP
- Paychex
- QuickBooks Payroll
- Gusto
- Many other payroll systems
Payroll data is transmitted automatically, reducing administrative work.
9. Fewer Audit Disputes
Because payroll is reported continuously:
- Payroll records are more accurate
- Classification errors are caught earlier
- Final audits are typically quicker and easier
10. Better for Companies with Fluctuating Labor
Industries that benefit the most include:
- General contractors
- Roofing contractors
- Concrete contractors
- Electrical contractors
- Plumbing contractors
- HVAC contractors
- Marine contractors
- Remodeling companies
- Landscaping companies
11. Reduced Risk of Large Audit Bills
One of the biggest complaints from contractors is receiving a large audit bill months after the policy expires.
PAYGO greatly reduces the likelihood of:
- $10,000–$100,000+ surprise audit invoices
- Cash flow problems caused by audit adjustments
12. Supports Faster Business Growth
Contractors can:
- Hire employ ees when needed
- Take on larger projects
- Expand without worrying about large workers’ compensation deposits
Example
Traditional Policy
- Estimated payroll: $1,000,000
- Premium rate: $12 per $100 payroll
- Estimated annual premium: $120,000
- Down payment: $30,000
- Payroll increases to $1.4 million
- Year-end audit bill: Approximately $48,000
Pay-As-You-Go
- Premium deducted each payroll based on actual payroll
- No large audit surprise
- Cash flow remains predictable throughout the year
Additional Advantages
- More accurate job costing
- Better financial forecasting
- Lower financing needs
- Easier accounting
- Reduced administrative work
- Improved budgeting for large construction projects
- Particularly beneficial for contractors using certified payroll or prevailing wage
Best Candidates for PAYGO
PAYGO is an excellent fit for companies that:
- Have payroll over $100,000 annually
- Experience seasonal or fluctuating payroll
- Hire workers frequently
- Want to avoid large audit bills
- Use electronic payroll services
- Need to preserve cash flow for equipment, materials, and project expenses
Call 800 362-7800 or visit buildingtrades.com