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Management
September/October 2003

Changes to Workers' Compensation Insurance

By Geoff Coy, Certified Practising Accountant

Accountant, Geoff Coy, looks at recent legislative changes that will impact on your business's wage related categories and resulting workers' compensation premiums.

WorkCover is a statutory authority responsible for managing the State's workplace safety, injury management and workers' compensation systems and for the administration of relevant legislation. It is also responsible for ensuring compliance with Workers' Compensation and Occupational Health & Safety.

All employers have a legal liability to pay compensation to workers who are injured in the course of their work. Anybody who operates a trade or business and employs workers and/or engages contractors (who are or may be deemed workers) is obliged to hold a current Workers' Compensation policy from a licensed workers' compensation insurer.

In NSW there are nine licensed insurers. The insurers act as agents of WorkCover in assessing and collecting premiums, managing claims and investing trust funds in return for management fees which are set by WorkCover.

The penalty for non-insurance is a fine of up to $55,000 and/or six months imprisonment. There is also the possibility of a penalty equal to double the premium avoided, as well as the cost of any claims paid on the employer's behalf. If an employer is not insured, an injured worker can make a claim under the uninsured.

Recent Changes
If you have recently received your renewal for your business workers' compensation policy you may have wondered why superannuation, long service leave, termination payments and other employee benefits are now to be included in your declaration of wages.

In 2002, WorkCover NSW and the NSW Office of State Revenue (OSR) commissioned a review of employers' compliance with workers' compensation premiums and pay-roll tax in NSW. As a result of the review, the following changes have been made to workers' compensation.

• Require principal contractors to verify their subcontractors comply with payroll tax and WorkCover registration requirements and lodgement of periodic returns;
  
• Require principal contractors to collect information regarding all subcontractors' wages details, and lodge returns with the Office of State Revenue and WorkCover, including Australian Business Numbers and the amounts of contract payments;
  
• Improve data exchange between OSR and WorkCover to assist in reducing evasion and/or avoidance in the building industry;
  
• Amend the definitions of wages liable to pay-roll tax and workers' compensation premiums to achieve greater consistency between the pay-roll tax and workers' compensation legislation and reduce scope for evasion;
  
• Assess workers' compensation premiums on a group employer basis, that is, where more than one company or business is operated by the same owner.

For the purposes of calculating premiums the definition of wages has been expanded to include Superannuation, Long Service Leave, Payments made at termination or retirement, Fringe benefit taxable amount for benefits paid to employees, Trust distributions, and Director's Fees.

Why the need for change?
The new definition of wages has been adopted to arrive at a common approach for both workers' compensation and payroll tax. This common approach will simplify compliance and reduce both compliance and administration costs.

It is hoped that the uniform approach to the treatment of different sources of wages will maintain an unchanged premium liability regardless of salary packaging or employment catergories. This is irrespective of whether an employee's remuneration takes the form of income received from wages, fringe benefits or superannuation contributions.

Care should be taken to ensure that wages should be shown as previously defined for the past period and the estimate for the future period to include the new wage definition categories.

For small business operators, some payroll categories such as directors' fees and fringe benefits are sometimes calculated by the accountant well after the end of a financial year or policy period.

In these instances, care must be taken to include the amounts as future estimates and include the actual amounts in the following year.

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