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Workers’ compensation is a crucial part of any small business—no matter what type of industry you’re in. Having workers’ comp insurance in place helps protect your employees as well as your company in the event that someone gets injured on the job.


Financial protection for your employees means that—whenever necessary—medical bills, rehabilitation costs, and lost wages will be covered, eliminating any added stress when recovery should be the priority. For your business, financial protection means that you won’t be forced to pay out of pocket for an injury or illness that occurs as a direct result of the work your employee does.


Owning a small business typically means there’s less manpower and fewer resources than there is at a larger corporation. This can be tricky when considering the time and effort that goes into administrative tasks like workers’ compensation and payroll processing.


Let’s take a look at what it means to integrate workers’ compensation into your payroll system and when that might be a good idea for you, your employees, and your business.

What does traditional workers’ compensation look like?

Workers’ compensation is required by law in most states, and traditional plans can either be purchased through the state itself or from a private insurance company. Premiums are typically based on your industry, the number of employees you have, and your annual payroll.


At the beginning of each year, you’ll pay an estimated premium amount to cover the entire year. At the end of the year, your insurer will perform an audit to calculate exactly what’s owed—whether that means you paying the difference or the insurance company reimbursing you.


While this isn’t necessarily an issue for large companies, small businesses may not have the overhead to make it work financially—which is where other workers’ comp solutions may come into play.

What are other workers’ comp solutions for small businesses?

If you own a small business, you’ll know that your resources—like time and money—are precious. As opposed to paying one lump sum upfront, merely estimating your payroll costs for the year, you might consider a pay-as-you-go worker’s compensation program.


Pay-as-you-go programs can be incredibly flexible, tailored to your company’s specific needs. For instance, if you typically employ workers on a project-by-project basis, a pay-as-you-go program will allow you to utilize coverage solely for the period of time your workers need it. This means you won’t be paying for coverage during those periods between jobs.



Another benefit is—as the name suggests—you’ll be paying as you. You won’t need to have the funds right away to pay for an entire year’s worth of coverage. You simply pay for what you need when you need it.

What does it mean to integrate workers’ comp and payroll?

When you have limited time and manpower as a small business owner, you might consider working with a professional employer organization (PEO) for support with your administrative tasks. From payroll and tax filing, to workers’ compensation and HR services, PEOs can step in to handle all of the daily necessities of your business while allowing you to focus on what you do best.


So what exactly does it mean to integrate workers’ compensation into your payroll system? Integrating the two is simply automatically calculating your workers’ comp premiums each time you run payroll. This can be particularly helpful when the number of workers you have is constantly shifting based on projects or contracts.


With an integrated workers’ compensation and payroll system, you won’t have to worry about overestimating your premiums and paying too much upfront, nor will you have to worry about underestimating and owing an unexpected amount of money at the end of the year.


Integrating workers’ comp into payroll is a great way to streamline your processes and eliminate any uncertainty or stress during audit season.

Integrating workers’ comp and payroll for your small business

Small business owners typically have a lot on their plate. When you work with a PEO for your administrative needs, you can save valuable time and money in the long run. Integrating workers’ compensation into payroll can help simplify the admin side of your business and create more space for you to focus on growing your business.

Workers’ compensation and payroll processing can be two of the most time-consuming and necessary aspects of running a business. If someone is injured on the job, workers’ compensation is in place to financially protect both the injured employee and you as the business owner. Additionally, ensuring that your workers are paid accurately and on time is crucial in keeping your team happy and your company thriving.


Workers’ comp and payroll can be complex tasks, so it isn’t uncommon to make mistakes. Taking a proactive approach to reduce errors can help you save time and money over time. Let’s take a look at 5 ways to be proactive when it comes to reducing errors in workers’ compensation and payroll processing.

1. Be sure to accurately classify your employees

Before diving into the workers’ compensation and payroll process, it’s important to first accurately classify your employees. Do your team members work on a contract-by-contract basis, or do they earn an annual salary? Are they seasonal employees or part-time?


If you’re unsure of how to classify your workers, there are some factors to consider, according to the Department of Labor. What’s the degree of permanence of the job? Is the duration of the work continuous or sporadic? How much control does the worker have over their job, including the work itself as well as the economic aspect?


If the job is considered permanent or continuous in nature, it’s likely that the worker could be deemed as an employee. On the other hand, if the worker has more freedom and control over their work, including their schedule and pay, they could be considered an independent contractor.

2. Keep detailed records for each employee

Keeping detailed records for each employee is crucial for correctly calculating payroll and workers’ compensation. If for any reason you need to refer back to time cards, paychecks, or benefits, it’s important to be able to readily access that information.


Each state has its own rules and regulations around retaining employee records. Typically though, the requirement is at least a few years. Be sure to check what timeframe applies to your state before getting rid of documentation.

3. Take fringe benefits into account

According to the IRS, a fringe benefit is a form of pay for the performance of services—such as tuition assistance, personal use of a company vehicle, or childcare reimbursement. Knowing how this will play a role in workers’ compensation and payroll will be dependent on how your workers are classified. For employees, fringe benefits may be taxable, while for independent contractors, they likely won’t be.

4. Automate your workers’ compensation and payroll process

In some cases, small errors can lead to big issues when it comes to calculating workers’ compensation and payroll. Using automation software can be hugely beneficial in streamlining the process. Even if you aren’t handling workers’ comp and payroll manually, however, automating your services will only be as accurate as the data you input.


Keeping accurate records for your employees can help serve as a reference when inputting data for payroll or workers’ compensation.


It’s also important to note that by automating the process, you’re not only taking a proactive approach to accuracy, but also to timeliness when it comes to paying your workers.

5. Work with an experienced PEO to handle workers’ comp and payroll

Professional employer organizations (PEOs) are great for creating space for you as the business owner to focus on growth and strategy by taking care of the administrative tasks necessary to run your business.


PEOs handle everything behind the scenes when it comes to payroll and workers’ compensation—from tax filing and getting your employees paid to managing workers’ comp claims and calculating premiums. Workers’ compensation and payroll processing can be tedious and complex. Allowing experienced professionals to handle the process for you is a good way to help reduce errors.


When you take a proactive approach to reduce errors in your workers’ compensation and payroll processes, you not only save time and money for your business, but you also help boost employee morale by getting your workers compensated accurately and on time.

If you own a small business, you likely wear many different hats when it comes to running your company. From being the creative brains behind the operation to handling the day-to-day administrative tasks—-it’s easy to have your hands full as a small business owner.


When things feel overwhelming inside your business, what can you do to alleviate some of the stress? Streamlining payroll and workers’ compensation can help you save time and energy for the areas of your business that need your attention most. Let’s take a look at 5 essential tips for small business owners when it comes to payroll and workers’ comp.

1. Classify Your Employees Correctly

In order to help ensure both payroll and workers’ compensation run smoothly, it’s important to properly classify your workers. Are they considered employees, or are they independent contractors? This will play a big role in terms of tax withholdings and payments, as well as potential benefits. Their classification will determine whether or not they’re entitled to receive paid time off or a 401(k).


If your employees are classified incorrectly initially, you could be faced with fines, penalties, and even potential lawsuits if benefits are unpaid. If there’s any question about the classification of your workers, it’s a good idea to reach out to an HR expert for clarification.

2. Create a Schedule for Payroll

In many cases, workers’ compensation insurance requires long-term contracts. While this works well for many people, contracted workers, seasonal employees, or anyone who works on a project-to-project basis may benefit from other options. Short-term coverage is temporary, so no contracts are required, and you’re able to get the coverage you need for the amount of time you need it.

Professional employer organizations typically offer pay-as-you-go programs for workers’ comp. This means you can choose exactly how long you’d like the insurance to be in place—whether it’s just a few days or several months. Pay-as-you-go programs are incredibly flexible in terms of coverage and duration, and they’re tailored to meet your needs.

Additionally, you can deactivate and reactivate your short-term workers’ compensation insurance at any time, so you won’t have to go through the application process all over again after your coverage has been on hold. You can simply put the same coverage you previously had back into effect when you need it.

Temporary workers’ compensation also offers the same level of coverage companies can get with long-term insurance. You can rest assured knowing you and your employees will be taken care of if anything happens on the job.

3. Automate Payroll

If you’re a small business owner, automating where you can is a great idea. Using a payroll automation system can help you simplify the process of paying your employees. Automating payroll can help ensure your employees are paid accurately and on time.

You won’t need to worry about any of the calculations yourself, eliminating the possibility of errors. Payroll automation can ultimately help you save time and money in the long run.

4. Maintain Accurate Written Records

Keeping your records is crucial for several reasons—one of which is that the IRS requires it. Though the minimum amount of time to keep your payroll tax records is four years according to the IRS, it’s good practice to keep them a couple years past that to be safe.


Pay increases and timecards should be kept for a few years as well, which can be beneficial if there’s ever a discrepancy between your business and a former employee in terms of pay.


Maintaining accurate written records in a well-organized system is important for streamlining your payroll and workers’ compensation. An accurate system means fewer questions, less confusion, and a more simplified process in the future.

5. Consider Working With a PEO

If this all feels like a lot for one person to maintain, consider working with a professional employer organization (PEO) to help your company get individualized support. PEOs will take care of all employment tax filings, process annual W-2 forms, and manage administrative tasks. They’ll also ensure compliance with regulations, help mitigate risks, and enforce workplace safety.


Streamlining workers’ compensation and payroll services is crucial for ensuring efficiency within your small business. With limited manpower, however, it can be difficult to manage it all on your own. Working with a PEO can help alleviate some of the stress that comes with owning a small business and ultimately help create more space for you to focus on strategy and business growth.

A Final Note

If you’re a small business owner, keep these five essential tips in mind to help streamline your payroll and workers’ compensation. Properly classifying your workers, creating a schedule for payroll, automating payroll, maintaining accurate records for each employee, and considering a partnership with a PEO can have a big impact on how smoothly your business operates.