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How Does My Workers' Comp Transfer to My New Payroll Provider?

May 17th, 2024 | 5 min. read

By Shelby Betts

Changing payroll providers raises a crucial question for many business owners: What happens to my workers' compensation insurance? This type of insurance, while essential and often required by state law, tends to be a background concern—until you have to file a claim or it's time to transfer it to a new provider.

With all the details and regulations involved, the process can feel overwhelming, especially when you need continuous coverage without disruption.

At Whirks, we understand that change can be intimidating. That's why we've simplified the transition of workers' comp policies for hundreds of companies. Our team of licensed insurance agents is not only skilled in state laws and compliance issues but also specializes in making insurance transitions smooth and straightforward.

In this article, we'll guide you through the different options for handling your workers' compensation insurance when you switch payroll providers. Whether you're looking to transfer your existing policy, start a new one, or simply understand your options, we'll provide you with the knowledge you need to make the transition smooth and stress-free.

What Is Workers' Compensation Insurance?

Workers' Compensation is a type of business insurance designed to provide benefits to employees who suffer from work-related injuries or accidents. This insurance helps cover medical care costs, compensates for lost wages, and supports employees during their recovery time away from work. It serves as a crucial support system for both employees and employers.

What It Means For Employers

For employers, having a worker's compensation policy safeguards against the costs associated with workplace injuries, so that employers are not directly sued or required to pay out of pocket for employee injuries.

Without a policy, an employer can be held liable for an employee’s accident or illness, which has the potential to bankrupt the company if the injury is serious enough. 

What It Means For Employees

When an employee is injured or falls ill due to their work, workers' compensation insurance steps in to cover necessary medical treatments, ongoing therapy, and even offers a death benefit in the tragic event of a fatal workplace accident. The scope of coverage depends on the nature of the injury, the specifics of the policy, and state regulations.

A Real World Scenario

Consider a common workplace incident: a restaurant cook slips, falls, and breaks their arm. Who is responsible for the costs of the ambulance, emergency room visit, and treatment?

With worker's compensation insurance, the restaurant is protected from these costs, providing crucial financial relief and support to the injured employee. This coverage not only helps manage the immediate expenses but also secures the well-being of employees and the operational stability of the business in the face of such accidents.

Who Needs Workers' Compensation Insurance?

Workers' Compensation is mandated by law in most U.S. states, with only a few exceptions. As a rule of thumb, any business with employees, excluding the owners, should have worker's compensation insurance.  It's designed to provide necessary coverage for employees in the case of work-related injuries or illnesses.

Specific Regulations by State

Both the requirements for maintaining coverage and the penalties for failing to provide it can vary based on your location.

For example, in Tennessee, the law requires any business with five or more employees to have worker's compensation insurance.

How to Find State-Specific Information

If you want to check out your state-specific guidelines, check out the Workers' Compensation State-by-State comparison article.

What Happens If I Don't Have a Workers' Comp Policy?

Businesses that do not provide worker's compensation insurance can be fined, imprisoned, and lose their right to conduct business in their state.

In addition to the fines and penalties for not having proper coverage, employees can sue you, and you would be required to pay for the lost wages and medical expenses of your employee out of pocket.

In short, there is a great financial risk to an employer who does not get insured. 

How Does Workers' Compensation Work With My Payroll Company?

Worker's compensation insurance is often managed alongside payroll by many payroll companies. When an employer partners with a payroll provider that offers worker's compensation services, the payroll company typically handles the calculations of premiums based on the payroll data.

This facilitates accurate premium deductions and ensures that the insurance premiums align with the actual payroll, minimizing discrepancies and simplifying administrative processes for the employer.

Pay-As-You-Go Option

With your payroll company handling your insurance policy, employers have the option of setting up Pay-As-You-Go insurance. In short, a Pay-As-You-Go option allows the employer to pay their premiums on actual payroll totals instead of quarterly or yearly estimates.

This can be an excellent cash flow solution for a seasonal business or an owner who doesn't want to pay a large deposit at the beginning of their policy. If you opt-in to a pay-as-you-go option, your payroll company will most likely handle your annual workers' comp audit for you as well.

Traditional Workers' Comp Policy

If you have a traditional worker’s compensation policy, this means that you pay a deposit on your policy at the beginning of your policy period.

At the end of your policy, you will be asked to complete a worker’s comp audit so that you have paid the total amount needed to continue having coverage. This audit is important for a variety of reasons, but the main reason is due to how your insurance premiums are determined-- typically calculated per $100 of payroll.

For example, if you estimated that your annual payroll would be $1,000,000, but your annual gross payroll was actually $1,300,000 instead, then you actually owe premiums on the $300,000 of additional payroll wages you issued that you didn’t include in your initial quote. Similarly, if your policy was based on one million dollars in annual payroll, but you only paid $800,000 in annual payroll wages, then your insurance company would owe you a refund on the overpaid premiums. 

Why Transfer Worker's Comp with Your Payroll Provider?

When you switch payroll providers, aligning your worker’s compensation insurance with your new service isn’t just ticking a box—it’s ensuring that your safety net is securely in place.

This transition is key to maintaining uninterrupted coverage, compliance with state laws, and integration with your payroll processes, which in turn, affects how premiums are calculated and managed.

How Does a Workers' Compensation Policy Transfer to My New Payroll Company?

When switching to a new payroll provider, transferring a worker's compensation policy involves a few key steps.

Evaluate Workers' Comp During Payroll Transition

First, the employer needs to inform the new payroll company about the existing worker's compensation insurance. This transition is an ideal moment to reassess whether your current policy meets your business needs. It's a perfect opportunity to review coverage levels, check that all required parties and states are covered, and double-check that your employees are classified correctly for the best possible coverage and rates.

Be sure to talk with a licensed agent at the company when asking questions about the best option for your business.  (And if you're considering switching payroll providers, be sure to get yourself prepared by reading our article How to Switch Payroll Services Smoothly.)

Continuing with Your Current Policy

If you choose to keep your existing policy, a Broker of Record change might be required. In this scenario, you’d retain your current policy, but the ownership of the policy would change. This means you retain your same insurance agency, policy, and claims support, but your new payroll company would be your broker of record. 

Switching to a New Policy

If a new policy better suits your needs after evaluating your current situation, your new payroll provider can help secure this new coverage. This may involve getting a new quote that more accurately reflects your current business operations, potentially offering more tailored benefits and possible cost savings.

Consider Pay-As-You-Go Coverage

Discuss Pay-As-You-Go options with your new payroll partner. This model ties your premium payments directly to your payroll figures, offering a flexible and often more manageable financial approach.

This method is particularly advantageous for businesses with variable payroll numbers, as it helps keep premium payments accurate and reduces the risk of payment discrepancies.

Make The Workers' Comp Work For You

If you are looking for a new payroll partner, remember that you should be asking questions about your insurance coverage as well. There are many options for you as an employer to simplify your back office and reduce administrative headaches.

Ultimately, you must have peace of mind that you are covered from risk and that your employees can work in a safe environment. 

There are many challenges that business owners face but finding insurance and payroll partners shouldn’t be one of them. If you still have questions, we wrote an article that helps you choose the right payroll provider for your business.