Workers Compensation Insurance

By Geoff Coy, Certified Practising Accountant

In this article, Accountant Geoff Coy looks at your obligations as an employer under current workers compensation legislation and why you may be targeted for an audit.

In recent months I have noticed an increase in the number of workers? compensation audits being carried out at service stations and convenience stores on behalf of respective insurance companies.

This begs the question: Why are these audits being carried out?

To ensure that employers are paying the appropriate premium, workers compensation law gives Work Cover and its licensed insurers a legal right to access an employer?s wages records. This review of an employer?s wages records is called a ?wage audit?.

Employers must cooperate with these inspections. If an employer still does not comply, they may be prosecuted and fined up to $55,000.

The conducting of a wage audit also leads to a further question.

Who is covered by Workers Compensation Insurance?

If a person or business employs or hires workers on a regular, casual or contract basis, they are considered to be an employer and must have a workers? compensation insurance policy. The contract may be expressed or implied, verbal or written, and it may be a contract of service or apprenticeship.

Generally, a worker is someone who receives wages or commission, regardless of the number of hours worked each week, and includes workers who work away from the employer?s premises.

As a general rule, if a person is entitled to receive workers compensation benefits, and if they have a work-related injury, then that person is considered a worker or ?deemed worker?.

Contractors

People working as contractors (including subcontractors) may also be ?deemed workers?. Workers compensation law does not rely on the tax status of the person carrying out the work to determine whether that person is a worker, deemed worker or contractor.

There has been tendency in recent years for some C-store operators to pay security firms to provide console operators particularly for night shifts. Generally speaking the security firm would be employing the console operator and not the C-Store. In this situation the security firm would be liable for workers compensation premiums and not the C-Store.

In such situations it is advisable to check the terms of arrangement with the security. If any doubt exists the matter should be referred to the particular insurance company.

Sole traders and partnerships

If a sole trader or partnership has workers, they must take out a workers compensation insurance policy. However, the sole trader and partners would not be covered by this insurance.

Sole traders and partnerships should consider taking out a personal accident and illness policy or an income protection policy, in case they are injured and unable to work .

Companies

A proprietary limited company (?Pty Ltd?) must have a workers compensation insurance policy to cover all its workers. Working directors (directors undertaking employee-type duties) are considered workers of the company.

Below is a general summary of what is considered wages for the purposes of premium calculations ? it is not an exhaustive summary.

• salary / wages
• overtime, shift and other allowances
• over-award payments
• bonuses, commissions
• payments to working directors (including directors? fees)
• payments to pieceworkers
• payments for sick leave, public holidays and the associated leave loadings
• value of any substitutes for cash
• employer superannuation contributions (including the superannuation guarantee levy)
• grossed-up value of fringe benefits (allowances subject to fringe benefits tax are counted at the grossed-up value, that is the value of the benefit multiplied by the relevant Australian Tax Office fringe benefit formula*)
• long service leave payments (including lump sum payments instead of long service leave)
• termination payments (lump sum payments in respect of annual leave, long service leave, sick leave and related leave loadings)
• trust distributions to workers where the distribution is in lieu of wages for work done for the trust.

It does not include:

• directors' fees paid to non-working directors
• compensation payments

So how is your industry classified?

For premium rating purposes, all employers with a NSW workers compensation policy are allocated to an industry class based on the nature and risk of their business.

In 2004/05, there are currently 536 classes.

To give an indication as to the variety of tariff classification here are a few examples:

Demolition workers	13.44%
Building Maintenance	11.28%
School Teachers	0.92%
Accountants	0.39%
Automotive Fuel Retailer	3.67%
Auto Repair Services	3.67%
Grocery Retailer	3.97%

Basic Tariff Premium Example

Following is a basic example of how a premium is calculated for a C-Store with mechanical workshop.

Wages including payments to working directors	290,000
Superannuation including salary sacrifice and guarantee	30,000
Gross Wages for Workers Compensation purposes	320,000
WIC 2004/2005 Tariff	3.67%
Basic Tariff Premium before dust disease levy	$11,744

Don?t think for a minute that insurance companies get it right all the time. They make mistakes just like anyone else. If you are not happy with your requested workers

compensation premium you should discuss options with your insurer, to ensure that you are doing all you can to minimise your premium.

You may find you need to do some homework too, in order to explore all your options.

In discussing or reviewing your insurance premium your insurance company will attempt to identify which industry classification they believe best describes your overall business. This is often a point of some contention.

WorkCover IS cracking down on incorrect industry classifications ? BIG TIME. The fines and penalties are very frightening. However don?t simply trust your insurance company to classify you correctly. The rates are published and can be found at www.workcover.nsw.gov.au. You could save thousands of dollars simply by double checking that you are not incorrectly classified and paying too high a rate.