Pay-As-You-Go (PAYG) insurance is a flexible way to pay certain types of insurance, most commonly workers’ compensation, based on your actual payroll as it occurs, rather than estimated amounts at the start of the policy year.
How It Works
- Instead of paying a large premium upfront or in fixed installments based on estimated payroll, your premium is calculated in real time.
- You report payroll regularly—often weekly, bi-weekly, or monthly—and the insurance premium is automatically charged based on those figures.
- At the end of the policy period, there is less risk of large audit adjustments because you’ve already paid for actual exposure.
Benefits of Pay-As-You-Go
- Better Cash Flow Management – Pay premiums gradually as payroll is earned, avoiding large lump-sum payments.
- Reduced Audit Surprises – Since premiums are based on actual payroll, there’s less chance of owing a large sum after an annual audit.
- Accuracy – Premiums reflect real business activity, not estimates.
- Flexibility for Seasonal Businesses – Works well for businesses with fluctuating payroll throughout the year.
Example
- A business has a fluctuating workforce throughout the year.
- Using traditional workers’ compensation insurance, they estimate payroll for the year and pay quarterly premiums.
- At audit, the actual payroll was higher, and the business owes a large additional premium.
- With PAYG, the business reports payroll in real time, and the premium is automatically calculated, eliminating large end-of-year adjustments.
Bottom line:
Pay-As-You-Go insurance is a smarter, more flexible way to pay for coverage, particularly for businesses with variable payroll or seasonal employees. It helps keep cash flow steady and reduces surprises during audits.