Workers Comp "Pay-as-you-go" Plans Gaining in Popularity

By Roger Reynolds
Reprinted from the Florida Restaurateur
Volume 5 - No. 2 - March/April 2000
It used to be that restaurant owners needed to enter into employee leasing arrangements if they wanted to pay for workers' compensation insurance each pay period based on actual payroll. This is no longer necessary--restaurant owners no longer need to give up important control of their business to have a pay-as-you-go workers' compensation program.
Now many workers' compensation insurance carriers offer pay-as-you-go plans through approved payroll services. This keeps the business owner in charge of the business; he/she can now earn their own dividends for having a work environment that results in a good safety record.
There is usually a tremendous savings when the fees that a leasing company, or Professional Employer Organization (PEO), are compared to those of a payroll service that offers the pay-as-you-go alternative. Many restaurant owners aren't aware they are paying administrative fees on tips. The leasing companies quote an administration fee as a percentage of gross payroll; tips are a part of gross payroll. So, tips end up costing the restaurant owner money in fees.
Another way owners lose out with employee leasing in many cases is not receiving the tax credit for the Social Security and Medicare taxes paid on excess tips (see related story on page 33). The IRS says that on a payroll period basis both the employee and the employer must pay taxes based on the total amount earned (hourly rate plus tips).
However, if the owner tracks the amount of taxes paid on earnings above minimum wage, for his/her tipped employees, then a tax credit can be taken at the end of the year.
"Pay-as-you-go" programs keep the insurance agent in the picture. The only thing that changes is the way premiums get calculated and paid.