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Do you have to pay Workers Compensation?

Monday, August 20, 2007
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Any employee who suffers a work-related injury or disease is entitled to be compensated for medical and related expenses, as well as lost earnings, without having to first establish that the employer was at fault in some way.

In addition, employees who are able to show that they have a work-related injury or disease that is aggravated by work are also entitled to be compensated, or to receive "workers compensation".

What are your duties as an employer?

Employers are under a duty to:

  • maintain adequate workers compensation insurance
  • notify any relevant insurer about a work-related accident, injury or illness immediately
  • accept any claim for workers compensation
  • implement and adhere to a workplace rehabilitation policy (this does not apply to all workplaces)

What are the duties of employees?

Employees are obliged to:

  • report any injuries received in the course of employment to the employer immediately
  • make any claims for workers compensation within six months of the illness or injury occurring
  • disclose any pre-existing injury or illness to an employer, or at the very least to not deliberately withhold such information.
  • to notify the employer of any improvements or deterioration in the employee's condition while receiving workers compensation payments or benefits

Who pays workers compensation?

While employers are obliged to make workers compensation payments, in reality the payments are made by the relevant workers compensation insurer.

Not maintaining workers compensation insurance will not enable you to avoid paying workers compensation, as employees will be compensated from funds specially set up by the Workers Compensation Schemes operating in the State or Tribunal within which the claim was made.

The fund will then sue the uninsured employer for the amount paid out to the injured employee.

Which employees are entitled to claim?

Only "workers" can claim workers compensation, and the definitions of who is a worker is contained within the Workers' Compensation legislation of each State and Territory. If an employee meets the definition of a "worker" as described in the legislation, the employee will be eligible for compensation payments in respect of any work-related injury or disease suffered in the course of employment.

Important

In some States and Territories eg New South Wales, workers lent or on-hire from labour-hire companies are deemed or considered to be employees for the purposes of workers compensation. This means that where an employee lent or on-hire from a labour hire company suffers an injury or illness while at work, they will be eligible to receive workers compensation payments as a result.

Who is a worker?

Below is an outline of who each state considers to be a "worker."

New South Wales

  • A person who has entered into or works under a contract of service or apprenticeship with an employer
  • Employers lent or on-hire from labour hire companies

Victoria

  • Any person who has entered into or works under a contract of service
  • Contractors who:
    • are natural persons eg not a company and who perform some of the work personally
    • do not regularly carry on a trade or business, or where they do, the work the contractor performs is not within the scope of the trade or business regularly carried on by the contractor
    • are being utilised by the principal engaging the contractor in the principal's trade or business.

Queensland

  • Persons engaged to work on a labour-only basis, including labour-only contractors
  • A contractor who supplies materials and equipment in addition to labour is not covered for workers compensation by the person who engaged the contractor.

South Australia

  • Workers in the building industry
  • Cleaners
  • Taxi-drivers and drivers of vehicles used for freight purposes
  • Singers, dancers, acrobats and comedians
  • Ministers of religion
  • Outworkers

Western Australia

  • People who work under a contract of service with an employer
  • People who work under a contract for service eg contractors
  • Contractors will fall under the definition of a worker if the contractor is:
    • engaged by another person to do work which is for the purpose of the other person's trade or business
    • paid in substance for his/her personal manual labour or services.

Tasmania

  • Worker refers to a person who has entered into a contract of service or of training with an employer.

Northern Territory

  • Workers who have PAYG tax deducted from their pay
  • Workers who would have had PAYG tax deducted from their pay but deductions had not yet been made
  • Would have had PAYG deducted but their pay fell below the PAYG threshold

Australian Capital Territory

  • Worker includes people working under a contract of service with an employer. If a contractor has his/her own business, the contractor will not be held to be a worker of the employer which engages him/her unless contracted in a role which is beyond his or her usual activities.

What is a work-related injury or disease?

Any injury or illness "arising out of or in the course of employment", will attract workers compensation, including:

  • work-related diseases
  • work-related injury
  • work-related aggravation or the acceleration of a work-related injury or disease
  • related mental trauma and stress illnesses are also increasingly being allowed, eg, a NSW worker recently obtained workers compensation for a heart attack suffered on the weekend
  • medical and other related costs

Checklist

Step 1: An employee incapacitated by a work-related injury should notify his/her employer.

Step 2: The employer completes and lodges a claim with the insurer.

Step 3: The insurer accepts or contests liability.

Step 4: If liability is accepted, payment is made to the employee from the time of the incapacity

Step 5: If liability is contested, the employee should contact his/her union in order to bring the matter before a relevant court or tribunal.

Step 6: If the employee is not a member of a union then assistance should be sought from a solicitor.


How much will an employee receive on workers compensation?

The insurance company, on behalf of the employer, pays the injured employee a certain amount each week and the amount payable varies according to:

  • how badly injured the worker is, ie, whether they are they totally, permanently or partially incapacitated (in some cases a partially incapacitated worker will be treated as being totally incapacitated in certain circumstances)
  • the number of dependants and the degree of dependency.

Most workers compensation payments are weekly payments. Payments made to dependants after a worker dies from a work-related injury or disease are normally lump sum payments. In some States eg New South Wales, workers can "redeem" their periodic or weekly payments in the form of a lump sum in some cases eg where the employee will never be able to return to work and may need access to a lump sum to make provisions eg alterations to a house for wheelchair ramps, or to pay for permanent care.

Workers who have lost the use of part of their body as a result of the injury or disease may be entitled to a lump sum payment in addition to their regular payments.

Other payments

In addition to the weekly payments, the insurer may pay all medical and associated costs, eg artificial aids, home care, transport costs and (in some cases) payment for a personal attendant.

In general, where an employee has only been employed for a short period, calculations are based on a comparable employee's earnings over the previous year.

Employers who work for more than one employer will be entitled to have earnings from the second employer included in the calculation of Average Weekly Earnings (AWE).

Calculating compensation

Jurisdiction

Calculation

Federal

  • Normal weekly earnings including:

Overtime (averaged and added to the base amount) and earnings from other employment at the time of injury. Any increases or decreases in pay that would have been paid are paid despite the injury.

Normal weekly earnings =

(NH x RP) + A

NH = average number of hours worked

RP = average hourly ordinary time rate of pay

A = average amount of payable allowances

New South Wales

  • Earnings from two or more workers are added together as if the total amount was earned from the employer the worker was working for at the time of injury
  • Earnings are adjusted so that no reductions occur if work was in fact interrupted by such things as illness, strikes, lockouts or bad weather
  • Any payments for special expenses related to the work are disregarded
  • Casual workers' earnings are worked out so that they are at least equivalent to the basic wage for a full working week.

Either:

  • the rate per week that applied at the time of the injury; or,
  • the rate that the employee would have received had the employee not been injured (where this rate is higher than (a), the employee is to receive the higher rate.
  • Workers get a maximum of 26 weeks leave on the Award rate and are entitled to the current statutory rate if they remain unfit for work after this period.
  • Partially fit employees who are not offered suitable duties by their employer are entitled to 80% of the Award rate while rehabilitating or job hunting for up to 104 weeks. If the worker is still incapacitated, payments can be discontinued if he/she is no longer job hunting or is unemployed due the labour market rather than the injury
  • Workers cannot unreasonably object to suitable employment, and if they do payments are reduced to the difference between the current weekly wage paid before the injury occurred and what the worker can now earn in suitable employment.

Victoria

  • "Current weekly earnings", is calculated according to the ordinary time rate of pay for the normal number of hours per week, or the actual earnings paid if there is no such rate.
  • Adjustment is made to attribute a money value to non-pecuniary benefits.
  • Contractors are not paid any amounts that relate to supply of capital or materials.
  • Where workers are employed by more than one employer, highest rate received is used in calculations.
  • Total incapacity: First 26 weeks are paid at the lesser of 95% of pre-injury average weekly earnings or $719 (this is the current rate applicable for the period 1/7/00 - 30/6/01, with the rate changing annually on 1 July). This drops to the lesser rate of 90% of pre-injury average weekly earnings or $719 after 26 weeks.
  • The rate will vary according to the seriousness of an injury, level of incapacity caused and any partial income received
  • Pre-injury average weekly earnings are averaged over the 12 months preceding injury, calculated according to ordinary time rates and normal number of hours worked. Award rates are followed where applicable.

Queensland

  • A worker employed for less than a year usually has the calculation made over the period of actual employment.
  • Special expense amounts related to employment are not included in AWE.
  • Earnings under multiple contracts are totalled and averaged.

Average Weekly Earnings (averaged over 12 months before injury), including overtime.

South Australia

  • Average weekly earnings = what a disabled worker could reasonably be expected to have earned if he or she had not been injured.
  • Contractors' earnings are calculated according to prevailing awards or industrial agreements
  • If earnings have decreased because of the gradual onset of disability, the decrease is disregarded
  • Calculations are usually adjusted to bring them up to full-time adult wages, at Award or industrial Agreement rates where an injured workers was part-time, under 21 years of age, or an apprentice and
  • Irregular overtime, superannuation contributions by employers and prescribed allowances are disregarded.

Average Weekly Earnings

Western Australia

  • Weekly payments are made according to Awards or Agreements Overtime after the first four weeks, penalty and other allowances are not included for the purposes of average weekly earnings
  • Award variations eg increases after the injury are met
  • If a worker worked longer or shorter hours than specified under an award, payments should reflect the actual hours worked, as a proportion of award rates.

Average Weekly Earnings

Tasmania

  • Normal weekly earnings are an average of a years wages before injury.
  • If weekly rates change during incapacity, payments to injured workers change accordingly.
  • Regular overtime is included, but discretionary payments by an employer, and work related special allowances or expenses are excluded.

Weekly rate payments are made according to:

  • the greater of a normal weekly earnings rate or
  • the amount actually received as an ordinary time rate for hours worked.

Northern Territory

Calculations are based upon the "Average Weekly Earnings for Full Time Adult Persons, Weekly Ordinary Time Earnings for the Territory".

NWE x AWE

  • AWE (applying at entitlement)
  • NWE = normal weekly earnings just before injury
  • AWE = average weekly earnings just before entitlement.

Australian Capital Territory

  • Workers must not benefit from their incapacity so that total amounts cannot be above what would otherwise be earned.

Incapacitated workers are paid a base figure of $289.04 per week for themselves, $76.06 for a spouse or "prescribed person" and $35.50 per week for any dependent child (rates at 1/10/00, varied quarterly), each amount being topped up with pro rata payments for odd days when appropriate.

Where incapacity is partial, the amount payable is increased to the level of payable sick leave, if any. Sick pay levels relate to the actual earnings that would be paid, but do not include overtime, allowances or special work-related expenses.

Calculating premiums

Premiums for workers compensation insurance are assessed according to the total wage figure for the employer, multiplied by a risk factor which takes into account the type of work carried on by workers. This means that higher premiums will be paid by employers with employee working in high risk injuries eg building and construction workers, as opposed to office workers.

In some states, the calculation of premiums is based on a combination of the employer's predominant industry rate and on the employee's previous claims history (eg Queensland, New South Wales and Victoria).

Each jurisdiction has a different definition of what comprises total wages.

Jurisdiction

Includes

Excludes

Federal

Gross wages, including conditions of employment eg annual, long service and sick leave

Overtime, over-award and penalty rates

Piecework payments

Public holiday payments

Allowances for reward of merit

Taxable allowances

Superannuation payments, workers compensation benefits

District and remote location allowances

Termination payments eg accrued annual or long service leave

Payments for special expenses, performance pay, tool allowance, fringe benefit allowances and administration costs

Holiday leave loading if paid separately from wages or salary non-taxable allowances

New South Wales

Salary, overtime, shift and other allowances, over-award payments, bonuses, commissions, payments to working directors, public and annual holidays including loading, sick leave, value of board and lodging provided by an employer, any money or money's worth given to worker under employment contract

Special expenses, allowances to reimburse costs arising from obligation incurred under contract, any amount expended on behalf of the worker, directors fees, workers compensation payments, long service leave, any payment under the Building and Construction Industry Long Service Payments Act

Australian Capital Territory

Salary, overtime, shift and other allowances, over-award payments, bonuses and commissions, payments to working directors, public and annual holidays, including loading, sick leave, value of board and lodging provided by the employer, any money or money's worth given to the worker under an employment contract, payment under a contract, including commission, fee, reward or otherwise

Travelling, car, removal, education, clothing, entertainment and tool allowances, vehicle expenses, living in the country or living-away-from-home allowance, compulsory employer contributions, superannuation contributions benefits other than contributions made from money payable to the worker, lump sum payments on termination, including superannuation, accrued holidays, long service leave, workers compensation, wages and payments to non-workers

Northern Territory

Wages, bonuses, allowances, commission, all other remuneration paid, including holiday pay, sick pay and long service leave, overtime

Queensland

Wages, overtime, holiday pay and loading, bonuses, sick leave, allowances, commissions, travelling time payments, value of board and lodging, salary package payments, long service leave payments during the term of employment, other entitlements with monetary value forming part of the workers remuneration, salary sacrifice superannuation contributions as part of a salary agreement.

Travelling, car, removal, meal, education, clothing, entertainment and tool allowances, vehicle expenses, living in the country or living-away-from home allowance, compulsory employer superannuation contributions, superannuation contributions benefits other than contributions made from money payable to the worker, lump sum payments on termination, including superannuation, accrued holidays and long service leave, workers compensation, wages and payments to non-workers

South Australia

Payments made to or for the benefit of a worker

Workers compensation, termination payments or severance pay, reimbursement for specific expenditure, motor vehicle allowance for the workers own vehicle while employed accommodation allowance (vehicle and accommodation allowances are subject to certain limits)

Tasmania

Salary, annual and public holiday pay including loading, board and lodging, bonuses if paid under award or agreement, car allowance if it forms part of the taxable income, clothing allowance, commission, industry allowances that are taxable, payment to working directors, over-award payments, overtime, penalty rates, superannuation if salary sacrificed, third party remuneration such as school fees if salary sacrificed

Company car, company house, directors' fees, early retirement benefit, entertainment allowance, ex gratia payments, fringe benefits, housing loans, long service leave, lump sum payment in lieu of holiday, sick leave, payments in lieu of notice, redundancy, retrenchment, severance or termination payments, staff discounts, workers compensation

Western Australia

Gross wages/salaries, remuneration, commissions, bonuses, overtime, allowances, directors' fees, all other benefits before the deduction of income tax

Termination payments, retirement pay, retrenchment pay in lieu of notice, superannuation, pensions, "golden handshakes" or weekly payments of compensation.

Victoria

Gross wages/salaries, allowances including accommodation exceeding $130 per night, clothing, cost of living, dirt money, dry cleaning, entertainment, exchange, living-away-from-home, motor vehicle on payment exceeding 53.5c per kilometre, rental, travelling, tools and uniform, annual leave including loading, back pay, bonuses, commission, contract payments for labour only services, directors' fees, fees for worked performed, employer superannuation contributions, fringe benefits, long service leave, overtime, payment in lieu on resignation

Apprentice and trainee remuneration, workers compensation, dividends paid to shareholder, partners' drawings, termination payments, including payments in lieu of notice, accrued holiday pay, long service leave, severance pay

Record keeping requirements

Important

Except for WA and the ACT, all employers must keep a record of any work-related injuries suffered by employees for workers compensation. This ensures payments are made to an employee during an absence from work due to compensable injury or disease.

How long should records relating to workers compensation be kept for?

NSW – seven years

QLD – three years

SA – seven years

NT – seven years

Tasmanian and Victorian employers do not have to keep workers compensation records but must keep records of work injuries.


Leave & workers compensation

Are workers receiving workers compensation entitled to leave?

Yes. Service is still continuing so the entitlement to leave will still accrue for as long as the employment contract does.

Can employees take leave while on workers compensation?

If an employee received sick pay while a claim for workers compensation was being processed, and the injury or illness is work-related and gives rise to a genuine claim for workers compensation, an employer is entitled to be reimbursed from the insurer for the amount of sick leave paid to the employee.

Alternatively, an employee may have accessed annual or long service leave entitlements while waiting for a claim for workers compensation to be accepted. Once again, where the employee has a genuine workers compensation claim, the employer can expect to be reimbursed from the insurer.

Is an employee receiving workers compensation still entitled to RDOs?

Not where the entitlement to an RDO is accrued by actually working, as is the case under most Awards. Check any Agreements or individual contracts because the case may vary.

Checklist for employers

Checklist
  • maintain accurate records relating to time and wages for every employee as these records need to be kept for seven years
  • know which independent contractors are "deemed" to be employees for the purposes of workers compensation and maintain payment details and other records relating to those "deemed" employees
  • keep records of every workers compensation claim as these records become part of your accident records and will be crucial for evidence in case an employee's earlier injury gives rise to another claim in the future
  • allow your insurer to inspect any wages records and supply a correct account of all wages and salaries paid to allow for an adjustment of any premium.

Important
  • an employee who has a genuine work-related injury that returns while the employee is on maternity or paternity leave may make a claim for workers compensation
  • employees on workers compensation may be entitled to payment by their employer for public holidays and also receive the appropriate workers compensation payments from the insurer, depending on the Agreement
  • the period during which an employee has been on light duties for workers compensation purposes must not be taken into account when calculating the average weekly wage for annual leave purposes for the employee


Summary
  • all employers have to pay workers compensation to any employee who suffers a work-related injury, illness or disease, or the aggravation of a work-related illness, injury or disease
  • while technically the employer pays the injured employee workers compensation, in reality it is the employer's insurer who pays the injured employee, and for this reason workers compensation insurance is compulsory
  • workers compensation insurance premiums are based on the total wages bill of an employer, multiplied by the risk factor associated with the type of work that employees undertake
  • employees are entitled to be compensated for lost earnings as well as medical and other ancillary costs eg medical aids, cost of home care
  • workers compensation is payable even where the employer was in no way responsible for the accident
  • only "workers" are entitled to workers compensation and the definition of who is a worker varies according to which State or Territory the accident or injury occurred in
  • the amount payable and the length of time over which payments may be received also varies, depending upon whether the worker has been totally or partially incapacitated and the relevant State or Territory Workers Compensation Scheme.

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23/11/2014 18:11Sydney, Australia. 23 November,2014
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