Workers Compensation Changes - June 06

Changes to 'Grouping' to Take Effect from 30 June 2006.

WorkCover have recently announced that certain employers will be treated as 'grouped' employers for Workers Compensation Insurance Premium calculations. Whilst the prospect of grouping was raised by the Government previously, it was not known how entities / employers would be grouped.

For this purpose, the definition of 'related entities' for Workers Compensation grouping purposes is based on the existing grouping definition for Payroll Tax purposes.

What is the change?

In brief, employers who are 'related entities' and have combined wages in excess of $600,000 will be treated as being 'grouped'. This 'grouping' of employers affects what is known as the 'S' factor used in calculating your insurance premiums. The 'S' factor is your 'experience adjustment factor'.

When does the change take effect?

Employer grouping commences for policies renewed on or after 30 June 2006.

What does the change mean for me as an employer?

As an employer, you should review your business structure in order to identify if you are affected by the new grouping provisions. It is likely that you may have already received information from your insurer with respect to the new provisions and how they will apply to you. As a grouped employer, you and your related employers must insure with the same Scheme Agent (or Insurer) and have the same policy renewal date.

If you are affected by the new provisions, you and your related employers are required to complete a 'Registration for Grouping' form and return it to WorkCover.

A further potential consequence of having you and your related employers grouped is your overall level of premium may increase. Depending on the nature of your group's claim experience, the new grouping provisions have the potential to have a detrimental affect on your cashflow and business profitability.

Is there anything I can do to avoid grouping?

Depending on the ownership structure and the nature of the relationship between you and your related entities, there may be opportunities to restructure your affairs. We note, however, that the grouping provisions of related entities can be quite broad, meaning any available alternative structure(s) may not necessarily produce any material benefit. There may also be other commercial considerations to take into account when assessing any opportunities to restructure your affairs.

If you have any queries regarding these changes please contact your Client Relationship Manager or Darren Shone, Tax Associate, on telephone (02) 49622688.