Last updated: October 2026

Pay as you go workers comp: how it works and who should use it

Pay as you go workers comp bills premium on the payroll you actually ran instead of on an estimate of the payroll you think you will run. The premium adjusts automatically every pay period. If you hire five people in July, your premium goes up in July. If you lay off three in November, your premium drops in November. No lump sum deposits. No guessing.

How traditional workers comp billing creates the audit problem

Under a traditional workers compensation insurance policy, the carrier asks you to estimate your annual payroll at the start of the policy year. They multiply that estimate by the rate for your workers comp class code, apply your experience modification rate if one applies, and calculate your annual workers comp premium. You pay that premium upfront or in monthly installments based on the estimate.

At the end of the policy year, the carrier runs a workers comp audit. They compare your actual payroll to your estimate. If your payroll came in higher, you owe additional premium retroactively. If it came in lower, you get a credit.

The advice to "just estimate high to avoid audit bills" is wrong. Overestimating your payroll means you are lending the carrier money interest-free for 12 months. A $5,000 overestimate sitting with the carrier all year is $5,000 you could have used in your business. You get it back as a credit after the audit.

How pay as you go changes the math

A pay as you go workers comp policy bills premium from the payroll you report as you run it. New York's State Insurance Fund, for example, deducts each PayGo payment from your bank account when payroll is reported.

The premium tracks reality in near real time. A seasonal business that runs $200,000 in payroll during summer months and $50,000 during winter months pays summer-level premium in summer and winter-level premium in winter.

The year-end audit still happens on pay as you go policies. The carrier still reconciles actual payroll against what was reported through the payroll integration. But because the system has been reporting real numbers all year, the gap between reported and actual is typically small.

The tradeoff is that your workers comp cost fluctuates monthly. If you prefer predictable fixed expenses, the variability of pay as you go can complicate budgeting. A construction company that hires 10 laborers for a three-month project sees their workers comp bill jump significantly during those months. The total annual cost is the same as traditional billing, but the cash flow pattern is different.

Who benefits most from pay as you go

Seasonal businesses. Traditional billing charges you the same premium in January when you have 5 employees as in July when you have 20. Pay as you go charges you for 5 in January and 20 in July.

Growing businesses. A company that starts the year with 10 employees and ends with 25 gets punished under traditional billing. The estimate was based on 10 employees. The audit catches the additional 15. Pay as you go absorbs the growth incrementally so there is no year-end shock.

Startups and new businesses. A new business has no payroll history to base an estimate on. Pay as you go starts from actual payroll on day one.

Sole proprietors and small contractors transitioning from a ghost policy to an active policy. If you have been running a ghost policy with zero payroll and you hire your first employee, pay as you go adjusts immediately.

Who should stick with traditional billing

Businesses with stable, predictable payroll. An accounting firm with 15 salaried employees and zero seasonal variation has no reason to switch. Their estimate will be accurate. Their audit adjustment will be minimal. The traditional model works when the estimate matches reality.

Businesses that prefer fixed monthly expenses. Some owners want to know exactly what their workers comp cost per employee will be every month. Pay as you go introduces variability that, while accurate, requires tracking. If your bookkeeping cannot handle a fluctuating workers comp line item, traditional billing with a good estimate is simpler.

How to set up pay as you go through your payroll provider

New York's State Insurance Fund runs PayGo through three reporting vendors, InsurePay, SmartPay and Paychex, and says they work with most payroll providers.

Gusto offers pay as you go workers comp through its partner NEXT Insurance, which integrates with Gusto to deduct the premium every payroll. NEXT Insurance withdraws only the amount owed each period based on actual payroll.

Paychex payroll clients can use the Paychex Workers' Compensation Payment Service, which integrates with payroll to calculate premiums using actual wages instead of estimates. Paychex lists it as available in all states except North Dakota, Ohio, Washington and Wyoming.

You do not always need a payroll provider. New York's State Insurance Fund offers PayGo to employers that run payroll in-house, and you report through the chosen vendor's portal weekly, biweekly or monthly. It asks you to report even in low periods, or periods with nothing to report, because those reports feed the payroll verification at the end of the policy year.

The workers comp class code issue that pay as you go does not fix

Pay as you go solves the payroll estimation problem. It does not solve the classification problem. If your employees are assigned to the wrong workers comp class code, you are paying the wrong rate on every payroll run regardless of whether the billing is traditional or pay as you go.

A construction company that classifies a project superintendent as clerical (class code 8810) when the superintendent spends half their time on job sites (class code 5606, contractors executive supervisors) is underreporting premium on that employee's payroll. The year-end audit catches the misclassification and bills you retroactively regardless of your billing method.

Before switching to pay as you go, review every employee's class code assignment against their actual job duties. Read the full class code descriptions in your state's workers comp manual. If your workers comp for contractors includes employees who split time between field work and office work, confirm which code governs. In Texas, clerical code 8810 applies only to employees doing office work exclusively, and a clerical employee with any other duty has their total payroll assigned to the highest rated classification they are exposed to.

What to do this week

Ask your current carrier and payroll provider whether they support pay as you go workers comp integration. If both support it, request a switchover at your next policy renewal.

If your carrier does not support pay as you go, ask your insurance broker for quotes from carriers that do.

Pull your current workers comp policy and check the estimated annual payroll listed on it. Compare it to your actual payroll over the last 12 months. If there is a gap, you are either overpaying every month (estimate too high) or building an audit bill (estimate too low). Either way, pay as you go fixes the problem.

This is not legal or financial advice. Consult a qualified professional for your specific situation.