Workers’ compensation is a no-fault statutory compensation that an injured worker may claim under their employer’s compulsory workers’ compensation insurance policy. The no-fault principle means that compensation is available to the worker if they are unable to work due to a work-related injury, even if they or their employer committed no wrong.

If you operate a business and employ any workers, you are legally required to take out workers’ compensation insurance to cover injuries to your workers that occur during the course of their employment.

Workers’ compensation schemes in each jurisdiction have four aims:

  1. to return injured workers to work in a timely, safe and sustainable manner;
  2. to compensate injured workers for some of their economic loss during their period of recovery;
  3. to cover the cost of any necessary medical treatment; and
  4. to achieve a balance between returning injured workers to work as soon as possible and ensuring that injured workers are able to fully recover and do not aggravate their injuries.

However, workers’ compensation insurance does not cover you for injuries caused to third parties, such as members of the public. Your business also needs public liability insurance for any of these type of claims.

Each jurisdiction has its own workers’ compensation legislation. Commonwealth legislation applies for federal public sector employees and employees of certain national private sector employers.

If your business operates in more than one jurisdiction, you must comply with the separate laws and workers’ compensation authorities. This will depend on where the particular worker is based.

The Safe Work Australia website has all the contact details for each jurisdiction (www.safeworkaustralia.gov.au).

2 types of workers’ compensation schemes

There are two major workers’ compensation schemes: managed fund schemes and privately underwritten schemes.

In a managed fund scheme, premium rates are set by a central authority based on forecasts of claim costs across all industries. Managed fund schemes operate in the Commonwealth, New South Wales, Queensland, South Australia, and Victoria. In New South Wales, South Australia, and Victoria, the government in each state underwrites the scheme and appoints scheme agents, i.e. private insurers, to sell the insurance to employers at premiums determined by a central premium guide. In Queensland, there are no scheme agents and the Queensland government directly sells the insurance.

The Commonwealth Comcare scheme generally applies only to federal employees, i.e. public servants, and other national businesses, such as Australia Post and John Holland. Comcare now offers coverage for those eligible corporations wishing to be covered by self-insurance.

A privately underwritten scheme means that private insurers sell the insurance and charge premiums for each employer based on a commercial underwriting analysis of the particular employer’s claims history and risk profile.

Workers’ compensation privately underwritten schemes apply in the ACT, Northern Territory, Tasmania and Western Australia. In this scheme type, the government does not underwrite the scheme. Instead, the relevant state or territory government approves private insurers to sell the insurance.

Workers’ compensation premiums

A premium is the annual fee an employer pays to a government insurer or government-authorised insurer for insurance protection against injuries arising in the course of their workers’ employment.

Your premiums help fund the financial and medical support provided to injured workers as well as the costs of any dispute management, and the scheme’s administration.

Each jurisdiction has its own method of calculating premiums. However, they all take into account:

  • the amount of money paid to your workers annually, including bonuses and commissions;
  • your industry risk rating; and
  • your claims experience rating.

An industry risk rating is given to each industry. It is important that you accurately characterise the work performed in your business so that the correct industry risk rating can be applied.

Your claims experience rating is the cost of previous workers’ compensation claims made in your business. Your claims experience rating is determined by:

  • the frequency and severity of injuries resulting in claims;
  • the way you handled these claims, e.g. whether you provided suitable alternative duties; and
  • how quickly workers can be safely returned to work (the biggest contributor to claims costs is time away from work).

There is a greater emphasis on return to work as a primary goal of all workers’ compensation schemes. This means there are more resources and incentives for businesses to achieve this goal.

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