Workers Compensation: Why Pay-As-You-Owe Policies are going self-reporting regardless of payroll service

Pay-as-you-Owe (PAYO) is fast becoming a premium structure for modern workers compensation policies. Since payrolls shrank and grew dramatically over the past eight years, business has demanded a way to smooth out workers compensation payments to more perfectly reflect current operations.

Wild swings between estimated premium and actual audited premiums have been an issue for agents as well. Large return premiums mean large return commissions. When an audit affects last year's commission earnings and then the current year is adjusted accordingly, the agent loses two times the reduction in one year. A financial burden proving too much for many agencies.

The many advantages to PAYO include:

1. Cash flow for the insured.

2. Premium payments align with pay periods or monthly.

3. Pay electronically, online.

4. Available at relatively low premium levels.

5. Easier audits

6. Reduction of audits with disproportionate changes in premium.

7. Easier for agents to monitor changes in operations.


Of course, insureds enjoy better cash flow when they can tie premium payments to current operations. Agents appreciate PAYO too. It's much easier to catch wild swings in the size of operations, and therefore, the appropriateness of coverage or plan design for the insured.

PAYO premiums produce reliable commissions. The agent can count on that premium to be earned. The agent can budget accordingly.

One of the biggest sources for client disgruntlement has been audits. Sometimes because of the size of the audit, but usually the timing of both the audit and the additional premium demand are inconvenient.

Any seasonal business, or business with uneven, or maybe unpredictable payroll benefits from PAYO. Business that moves among states, like a road crew for a musician, or a professional sports team, benefits by paying the correct state rate when picking up local labor. In effect, each pay period is a mini-audit.

Can PAYO benefit your business? Probably so. 

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