Insurers collect workers compensation premiums from employers to
fund the costs associated with work-related injuries and
diseases. Including payment of benefits to an injured worker, to
cover them for the loss of wages, treatments, rehabilitation and
lump sums for permanent disabilities.
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Each employer's workers compensation premium is based on various
things, including:
- The industry in which the employer operates - this will decide
what classification category the employer falls into;
- The amount of remuneration the employer pays to its workers; and
- The cost of any claims made by their workers (for employers with
a base tariff premium greater than $3,000).
Within two months after the start of a policy period, an
employer must provide to the insurer an estimate of the
remuneration which it will pay during the policy year and within
two months after the end of a policy period, an employer must
provide a declaration of the actual remuneration it paid during
that year.
When the policy is issued, the premium stated is only an
estimate. The estimate is based on projected remuneration and
the type of work you do. There are thousands classifications in
WorkCover's Insurance Premium Order. Each classification has a
different rate ranging from below 1% to up to 15%. Most
businesses are generally assigned one classification that best
describes its operations within a state.
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WorkCover and its licensed insurers have a legislative right to
access an employer's wages records under section 174 of the
Workers Compensation Act 1987. They use this right to conduct
audits to ensure that employers are paying the appropriate
premium. Condition 22 of your policy document issued by your
insurer will also outline the insurer's right to access wage
detail records.
WorkCover have a computer software program that evaluates
employer's policy details and computes statistic figures on
areas that have a high-risk for non-compliance. Based on these
figures they determine who they will target for wage audits.
Insurance companies also conduct their own wage audits,
independently of WorkCover's requested audits. Audits may be
conducted by an authorised representative of the insurance
company or by an independent audit firm.
The wage audit is critical, as the information gathered is also
used to calculate your "Renewal" premium.
An employer may be inspected more than once. There is no limit
on the number of times an insurer may audit an employer's
records.
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An employer must comply with WorkCover's direction to provide
information. If the employer does not comply with the auditor's
requests, then WorkCover may make various orders directing the
employer to provide information. WorkCover's powers to require
this are set out in section 174 (5) of the Workers Compensation
Act 1987.
Those powers include the power to do any one or more of the
following:
- Require an employer to supply information to WorkCover;
- Require an employer to make information available for inspection
by someone authorised by WorkCover; and
- Set the time in which the information must be supplied or made
available for inspection.
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In the Beginning:
You will be notified in writing that you have been selected for
inspection. The notice must provide details of the auditor. That
auditor is to contact you to make arrangements for the audit to
take place.
During the Process:
During a physical audit, the auditor will arrive at your
business and examine payroll records, tax returns, cheque books,
and other pertinent documents in order to obtain the actual
payrolls and classifications for the policy period which just
expired. Payroll is generally used as the basis of premium
because it is measurable and can be verified to outside sources
(tax returns, time cards, cash registers, pay slips etc.). The
auditor's findings are then compared with the estimated figures
as shown on your policy.
At Completion:
If the auditor finds that the wage figures increased, you
normally get a bill from the insurance company showing the
"Additional Premium" due. If the auditor finds that the wages
went down, the insurance company owes you a "Return Premium".
Due to time constraints, the audits are often completed off
premises or without the auditor taking a tour of your operations
to verify classifications and operations. As a result, premiums
can be overstated.
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An employer must cooperate in relation to an inspection. In
particular, they must cooperate in making arrangements for the
inspection to take place within a reasonable time after the
initial request.
If the employer does not comply with the insurer's request to
audit the employer's wage records, then the insurer may request
that WorkCover issue an order requiring the employer to provide
access to the requested records. WorkCover has the power to make
those orders under section 174 of the Workers Compensation Act
1987. If an employer does not comply with the Order, the
employer may be prosecuted and fined up to 500 penalty units
(that is, $55,000 at the time of printing).
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The records WorkCover may require include:
- Financial statements;
- Minutes of Board meetings;
- Documents relating to contractual arrangements with other
parties;
- Profit and loss statements, cashbooks, cheque butts, etc;
- Details of long service leave and superannuation payments by
employers,
- Details of all contracts of employment; and
- Any other relevant documents.
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For many small businesses workers compensation audits are
stressful and time consuming often resulting in hefty penalties.
We have all heard the horror stories of honest, hard working,
small business operators being forced into insolvency, unable to
meet large fines.
These penalties are often the result of following inaccurate
advice. It is imperative to seek professional guidance on the
issues of insurance classifications, and specifically on
clarifying what can be deemed as director's fees and who can be
deemed workers.
As a legal and accounting practice we understand the needs and
concerns of small businesses. We take the time to explain
workers compensation laws and regulations in simple, clear terms
without the legal and accounting jargon.
We suggest preparing your own 'pre-audit' by compiling all the
required information and presenting it in a familiar format.
This will:
- Simplify the auditor's job;
- Reduce probing questions;
- Help you to know what to expect beforehand;
- Control the data the auditor observes;
- Help to manage the ultimate cost of this insurance.
We suggest that you avoid volunteering additional information.
While insurers have the right to inspect all records pertaining
to the policy, just how far that right extends is subject to
interpretation.
The Quinn Group has had extensive experience in assisting our
clients with preparing for and responding to workers
compensation audits as well as dealing with workers compensation
claims. We will help you be organised for your audit, provide
professional advice on your 'pre-audit' situation, giving you
confidence and control over your audit process.
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If you do not keep sufficient records of all details and
payments made to 'deemed workers' and 'contractors', the penalty
is up to 500 penalty units (that is, $55,000).
Each employer must make sure that the information it provides to
its insurer in these declarations is correct. The penalty for
providing false or misleading information to an insurer to
obtain or renew a workers compensation policy is up to 100
penalty units (currently $11,000 at the time of printing).
If an employer's declarations are found to be incorrect, then
various penalties may apply - for example, insurers may charge
employers a late payment fee at the rate of 1.2 per cent per
month compounded monthly on the balance outstanding at the end
of each month. These fees are charged on any premium that the
employer has not paid because it under-declared the remuneration
it paid. If the employer is a company, the directors of the
company may be personally liable for this debt.
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Our dedicated team can assist you with all your auditing
needs.
Complete
and submit the Express Enquiry form on the top right hand side
of this page and we will contact you to discuss your enquiry
or call us on 1300 QUINNS (1300 784 667) or on +61 2 9223
9166 to arrange an
appointment.
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