How to choose Worker’s Compensation Insurance for your employees.

Choosing Worker’s Compensation Insurance for your employees is a necessary evil. It’s your obligation as a business owner or employer to make sure you and your staff are covered in the event of an incident.

When you’re deciding what provider to choose, you can talk to a trusted advisor like your accountant or lawyer about the options available before making any big commitments.

This guide is also a useful first step to help navigate that process.

Once you have decided on an insurer they should be able to give you ongoing support and make sure you’re meeting all your obligations.

Want to refer to this later? Download a copy of the eBook here.

Contents

• What is Worker’s Compensation Insurance?
• Confusing employment types.
• What does it cover?
• What doesn’t it cover?
• How to compare policies.
• What affects the cost?
• Worker’s Compensation Vs Income Protection
• Tax Deductions
• Cross-Border Worker’s Compensation

Firstly, what is Worker’s Compensation Insurance, and do I really need it?

 Worker’s Compensation is compulsory for all Australian employers!

Worker’s Compensation Insurance is what will pay out the benefits in the event of a work-related incident, so it’s crucial to have it for everyone you provide remuneration to.

As the business owner it’s up to you to purchase Worker’s Compensation to protect you and your workers.

Anyone who employs paid workers is required to take out a worker’s compensation policy, unless the worker:

• Is a contractor under the definition used in that state. Read more here about the difference between an employee and contractor. 
• Earns less than a specified amount per year. This amount is generally less than the equivalent of full-time minimum wage, so you will usually be above this amount with normal employees in normal circumstances.

Confusing Employment Types:

• Sole traders and self-employed individuals, and the owners of other one-person companies are not required to take out workers’ compensation policies on themselves. 
• Sole traders and self-employed individuals are still required to provide workers’ compensation policies for all workers who meet requirements, regardless of their business status.
• Contractors may or may not require workers’ compensation policies. A principal contractor who employs subcontractors will usually need to cover them, but an independently operating contractor without employees will not. Some people are considered contractors for business purposes and workers for compensation purposes.
• “Deemed workers” are those who might not meet all definitions of a worker, but for whom you are still required to provide cover if they meet certain requirements. Each state has its own regulations and description of deemed workers which can include.
• A trustee might be considered a worker of the trust if they have PAYG contributions deducted from payments they receive from the trust, or receive superannuation contributions from the trust, in which case they may require workers’ compensation. Certain trust distributions, when made in lieu of wages, can also qualify a trust beneficiary as a worker.
• Volunteers and unpaid work experience students do not require workers’ compensation cover. 
• Volunteer organisations are not required to provide workers’ compensation, and do not need to meet the same OHS requirements as businesses. 
• Self insurance refers to the practice of large companies making their own workers’ compensation arrangements. You will need to have the resources and scale to provide compensation and manage recovery for workers in line with state standards.

Click here for a breakdown of “Employees Vs Contractors”.

What will worker’s compensation actually cover?

Australia-wide rules and requirements:

Workers’ compensation is managed at a state level, so some costs and policy details vary across Australia. However, the following elements are the same Australia-wide:

• Workers’ compensation insurance policies are mandatory. You must hold policies for all workers that you pay. This includes workers who may have no written contract.
• The premium costs of workers’ compensation policies are largely determined by your industry classification and your employee remuneration.
• Large companies can be eligible for self insurance. Some larger businesses have the resources to manage their own workers’ compensation plans.
• If you have a worker from interstate, they should be covered by a policy from the state/territory where they regularly work or operate from. For unusual circumstances like intestate shipping workers, they will generally need to be covered by a policy from whichever state their employer or ship is registered in.

Changes across States & Territories:

This is a good base guide to what can and cannot be covered and claimed in each state and territory, but it’s always best to confirm the exact details relevant to you in your location.

Victoria 

• Daily Commute: Not covered at all on journey to or from work.
• Work-Related Travel: Covered, but with strict conditions.
• During Breaks: Covered during on-site and off-site breaks.
• Work-related injuries that occur outside of the workplace: Employees can make claims as long as the job is shown to have been a significant contributing factor.
• Retirement aged workers: Workers entitled to benefits up to the age of 66, provided the disability occurred before they turned 64.

New South Wales

• Daily Commute: Generally NOT covered, with some exceptions.
• Work-Related Travel: Covered.
• During Breaks: Covered during on-site and off-site breaks.
• Work-related injuries that occur outside of the workplace: Employees can make claims as long as the job is shown to have been a significant contributing factor.
• Retirement aged workers: Workers entitled to benefits up to the age of 66, provided the disability occurred before they turned 64.

Queensland

• Daily Commute: Generally covered, with some restrictions.
• Work-Related Travel: Covered.
• During Breaks: Covered during on-site and off-site breaks.
• Work-related injuries that occur outside of the workplace: Employees can make claims as long as the job is shown to have been a significant contributing factor.
• Retirement Aged Workers: No restriction due to lack of specified retirement age.

Western Australia

• Daily Commute: Not covered at all on journey to or from work.
• Work-Related Travel: Covered.
• During Breaks: Covered during on-site breaks. Dependant on individual circumstances.
• Work-related injuries that occur outside of the workplace: Employees can make claims as long as the job is shown to have been a significant contributing factor.
• Retirement Aged Workers: No restriction due to lack of specified retirement age.

South Australia

• Daily Commute: Not covered at all on journey to or from work.
• Work-Related Travel: Covered.
• During Breaks: Covered during on-site breaks but must be authorised. Off-site breaks not covered.
• Work-related injuries that occur outside of the workplace: Employees can make claims as long as the job is shown to have been a significant contributing factor.
• Retirement Aged Workers: Workers entitled to benefits up to the age of 66, provided the disability occurred before they turned 64.

Tasmania

• Daily Commute: Generally NOT covered, with some exceptions.
• Work-Related Travel: Covered.
• During Breaks: Covered during on-site breaks. Off-site breaks generally not covered.
• Work-related injuries that occur outside of the workplace: Employees can make claims as long as the job is shown to have been a significant contributing factor.
• Retirement Aged Workers: Workers entitled to benefits up to the age of 66, provided the disability occurred before they turned 64.

Australian Capital Terriory

• Daily Commute: Covered going to work without restriction.
• Work-Related Travel: Covered.
• During Breaks: Covered during on-site breaks. Dependant on individual circumstances.
• Work-related injuries that occur outside of the workplace: Employees can make claims as long as the job is shown to have been a significant contributing factor.
• Retirement Aged Workers: Workers entitled to benefits up to the age of 66, provided the disability occurred before they turned 64.

Northern Territory

• Daily Commute: Generally covered, some restrictions apply.
• Work-Related Travel: Covered.
• During Breaks: Covered during on-site and off-site breaks.
• Work-related injuries that occur outside of the workplace: Employees can make claims as long as the job is shown to have been a significant contributing factor.
• Retirement Aged Workers: Workers entitled to benefits up to the age of 66, provided the disability occurred before they turned 64.

What doesn’t it cover?

Worker’s Compensation Insurance won’t pay out benefits when…

• Injury results from serious and wilful employee misconduct.
• The big one here is when the worker is under the influence of drugs or alcohol on the job. However, you should know that employees can still claim certain benefits for death or serious injury in all states, even if there was employee misconduct involved.
• The injuries were deliberately self-inflicted.  No claims can be made for death or injury as a result of intentional self-infli y6cted harm in any state or territory.
• The employee provides false information. A common example is a worker lying about having a pre-existing condition.
• You’ve taken reasonable action as a business owner. You can still fire, demote or promote, discipline and restructure . Workers cannot make claims for consequential injury, illness – including psychological. 

Once again the finer details vary depending on the state or territory.

It is also advisable to familiarise yourself with a few other key exclusions, and how they may vary between locations. 

How to compare policies

Make sure you understand the following things before you start comparing policies and committing to a provider:

• In the ACT, NT, TAS and WA premiums will vary between insurers, and you may want to get quotes to compare by price. Workers’ compensation premiums are calculated differently in each state.
• In NSW, QLD, VIC and SA you will get the same premiums from all insurers.
• In Queensland and South Australia you cannot choose your insurer, so you do not need to compare insurers. If you are employing eligible paid workers in these states, you must register for cover. In all other states you can choose your insurer.

See what insurers offer in terms of:

• Professional advice. Look for an insurer that will help you understand and meet workplace legal obligations.
• Training courses and seminars. These can assist you in proactively reducing costs and reducing workplace injury rates.
• Practical resources. Some states require employers to post signs in the workplace, provide specific services to employees and otherwise meet wide-ranging legislative requirements that vary from state to state. Find an insurer who can walk you through these obligations, and who can print up and send you the necessary signs and materials.
• Claims assistance. Depending on the situation, employees might send in their claims through you, the employer. If you can refer claims to your insurer to take care of as far as possible, it makes your job much easier.
• Ask a prospective insurer whether they’ll keep you up to date with any changes to workers’ compensation legislation that you need to be aware of.
• Legal assistance. Check if the insurer offers legal assistance in the event of an employee claiming that you were negligent, or failed to maintain a safe workplace.
• Case managers. Some insurers offer dedicated case managers for injured employees to help them get back to work sooner, which helps you keep down costs.
• On-demand advice and expertise. It can be very useful to know you can go directly to your insurer’s support team with any compensation queries or relevant legal questions you might have.

What affects the cost?

Workers’ compensation premiums and rates are adjusted each year and vary between states. They are based on:

• Total worker remuneration. The more you pay your workers in total, the higher your premiums. The way these impact your premiums, and whether remuneration includes bonuses, overtime, severance payments and other pay arrangements depends on circumstances and which state you are in.
• Some industries are inherently more dangerous than others and will consistently attract higher premium rates.
• Your business claims history. A business with a disproportionate number of previous workers’ compensation claims, compared to equivalent companies in the same industry, may stand out as being particularly unsafe even if it meets all occupational safety requirements. This may incur higher rates, depending on the situation and the state.
• The size of your company. This can be based on thresholds such as business income or total amount paid in worker remuneration

Who sets the premiums for cover?

In some states rates are set by the government, and in others by the insurance companies.

• States where it’s set by the government. In NSW, VIC, QLD and SA rates are set by the government, and are the same with all insurers.
• States where cost is set by the government but adjusted by the insurer. In WA rates are set by the government, but insurers may raise or lower them as desired up to a change of 75%, or more with special approval.
• States where premiums are controlled by insurers. In TAS, ACT and the NT premium rates are determined entirely by the insurers. The government might suggest rates but insurers have no obligation to use them.

Workers’ compensation premium rates are typically expressed as the cost of premiums per $100 paid in worker remuneration. For example, a premium rate of 1.70% means workers compensation policies will cost employers, in that industry and in that state, $1.70 for every $100 they pay to employees.

• You must declare annual wages paid to your insurance agent in order to calculate premiums. If you are declaring these in advance for the coming year, you are able to claim reimbursement if you overestimate, but may have to pay an additional amount later if you underestimate.
• One of the ways state governments manage workers’ compensation schemes is with discounts and incentives. These are different in each state and change frequently, but a number are accessed through improved workplace safety. When comparing insurers, consider asking how they can help you access discounts and incentives.

Worker’s Compensation Vs Income Protection

Income protection insurance pays ongoing benefits, usually of 75% of your normal income, if you are unable to work because of illness or injury. This is very similar to the income replacement benefits of a workers’ compensation policy, but with some key differences.

Where you are covered?

Income protection covers you 24/7 and wherever you are.
Workers’ compensation only covers you during your employment hours.

How much cover is provided?

Workers’ compensation pays up to 100% of your typical income for a limited period of time, before gradually reducing. Income protection usually pays consistent benefits over the course of the policy.

Purpose of cover…

Workers’ compensation is focused on getting employees back to work and many conditions are attached to benefit payments.
Income protection also has conditions, but will typically let you spend payments at your discretion.

What’s included?

Income protection can be effectively packaged with life, trauma and TPD insurance policies, while workers’ compensation policies are typically standalone.

When does a payout occur?

Income protection can pay benefits soon after an accident, while workers’ compensation may require more steps and more bureaucracy, and so take longer to be paid.

How long cover is provided for

Income protection policies become much more difficult to find after the age of 65, but workers’ compensation can provide cover right up to this age, and can keep paying benefits after it.

Tax Deductions

Contact your insurer or tax agent for specific answers about workers’ compensation and tax. The following is general information for Australia as a whole, but specific details may be different in your state.

Your workers’ compensation insurance provider should be an effective first point of contact for all workers’ compensation questions, including those that are tax-related.

• Workers’ compensation premiums are tax-deductible, provided you claim them in the same year. It can be written off as a revenue expense like other business insurance.
• Workers’ compensation benefit payments are usually tax-free, but you must declare them anyway. Ongoing workers’ compensation benefit payments are usually not taxable, but you must declare them for assessment. Lump-sum benefit payments, such as those awarded following a personal injury claim, are tax-free if they meet state requirements.
• GST, if applicable, is not considered when determining a worker’s wage for eligibility purposes.
• Insurers will typically make payments through the business owner, who is responsible for ensuring that all appropriate tax deductions are made. Business owners need to work closely with insurers to make sure all obligations are met.

Cross-Border Workers’ Compensation

A cross-border worker is someone who undertakes work in more than one state. Employers are required to hold appropriate workers’ compensation policies for any cross-border workers who are employed in their state according to the state of connection test. This test applies to each individual employer-worker contract, and might need to be checked again if circumstances change.

If this is all too much, and you want to be completely sure you’re meeting your obligations, get in touch with us about a workers compensation advisory meeting!