Pay-As-You-Go Workers' Comp: How It Works

Traditional workers' compensation policies are priced on an estimate. At the start of the policy year, you estimate your payroll, the insurer calculates a premium, and you pay a deposit followed by installments. After the year ends, a premium audit compares estimated payroll with actual payroll and settles the difference, which can mean a refund or an additional bill.

Pay-as-you-go workers' comp takes a different approach. Premium is calculated and paid each payroll period, based on the wages you actually paid. This page explains how it works, who it tends to suit, and what to ask before you choose it.

How pay-as-you-go works

You buy a workers' comp policy from an insurer that offers a pay-as-you-go option.
Your payroll provider connects with the insurer. Many payroll services and software platforms can report payroll to participating insurers.
Each pay period, payroll by class code is reported and premium is calculated on actual wages.
Premium is collected automatically, often on the same schedule as payroll.
At the end of the policy, a premium audit still typically takes place, but because premium was based on real payroll all year, the adjustment is usually smaller.

The coverage itself is the same workers' compensation coverage. Pay-as-you-go changes how premium is calculated and collected, not what the policy covers.

Who pay-as-you-go tends to suit

Seasonal businesses whose payroll rises and falls through the year, such as landscaping, construction, hospitality and agriculture
Growing businesses that expect to hire during the year
Businesses with variable hours, like restaurants and staffing-heavy operations
New businesses that find it hard to estimate a full year of payroll
Employers who want to avoid a large deposit at the start of the policy term

Potential advantages

Smaller upfront cost. Many pay-as-you-go programs require a smaller deposit than a traditional policy, depending on the insurer.
Premium follows payroll. You pay more when payroll is higher and less when it's lower.
Fewer audit surprises. Reporting actual payroll throughout the year usually means a smaller adjustment at audit.
Less paperwork. Payroll reporting can happen through your existing payroll system.

Things to consider

Availability varies. Not every insurer offers pay-as-you-go, and it may not be available for every class of business or in every state. In states where workers' comp is provided only through a state fund, the state fund's own payment options apply.
Your payroll provider must be compatible with the insurer's reporting.
Class codes still matter. Payroll must be reported under the correct class codes. Errors can still lead to audit adjustments.
Rates and terms are set by the insurer. Pay-as-you-go is a payment method, not a discount. Your premium still depends on your class codes, payroll, experience mod and the insurer's rating.
Subcontractor costs and payments outside payroll may still be reviewed at audit.

Keeping your reporting accurate

Pay-as-you-go works well when payroll data is clean. Set up each employee under the right job classification in your payroll system, update it when someone's duties change, and keep records of overtime, since some classification systems treat overtime pay differently. If you add a new type of work during the year, tell your agent so the policy and the payroll reporting both reflect it. Accurate reporting during the year is what keeps the year-end adjustment small.

Pay-as-you-go vs. traditional billing

	Traditional policy	Pay-as-you-go
Premium basis	Estimated annual payroll	Actual payroll each period
Upfront payment	Deposit, often a larger share of estimated premium	Often a smaller deposit, depending on insurer
Payment schedule	Installments set by the insurer	Each pay period
Year-end audit	Adjusts estimate to actual payroll	Usually a smaller adjustment
Availability	Widely available	Depends on insurer, class and payroll provider

How to get started

When you request a quote, tell us:

Your payroll provider or software
Your pay schedule: weekly, biweekly or semimonthly
Payroll by job type, and how it changes through the year
Your current policy, class codes and experience mod, if any

We'll look at whether pay-as-you-go options are available for your business and compare them with traditional billing.

Frequently asked questions

Is pay-as-you-go workers' comp different coverage?

No. It's the same workers' compensation coverage. Only the way premium is calculated and collected changes.

Does pay-as-you-go eliminate the premium audit?

Usually not. An audit generally still occurs, but because premium was based on actual payroll during the year, the adjustment is typically smaller.

Is pay-as-you-go cheaper?

Not necessarily. It's a payment method, not a discount. It can reduce the upfront deposit and smooth cash flow, but the premium itself depends on your rating factors.

Do I need a specific payroll company?

Your payroll provider has to be able to report to the insurer. Many common payroll services can. Tell us which one you use.

Is pay-as-you-go available everywhere?

No. Availability depends on the insurer, your class of business and your state.

Want workers' comp payments that follow your payroll? Tell us about your business and payroll setup and we'll review your options.

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WCFL Insurance Services is an independent insurance agency (CA License #6002332), not an insurance company. Quotes and coverage are subject to insurer underwriting, and requirements vary by state. This page is general information, not legal advice; the policy governs coverage.