Workers comp premium increases

Workers comp premium increases
icare NSW has filed its Workers Compensation Premium filing for the 2023-24 financial year. The average premium rate increase is 8%. Learn how to manage this in your business
Outline

Workers compensation premium rate rises

  • Workers compensation premiums are increasing.
 
  • The cost of goods or services may need to rise.
 
  • A small business accountant can help you handle these changes.

  • An accountant can help reduce workers compensation premium costs.

icare NSW has filed its Workers Compensation Premium filing for the 2023-24 financial year. The average premium rate increase is 8% which is a significant increase driven by increased prices that are affecting a wide range of industry sectors in Australia. All states will experience premium increases, from SA with an average 5% rise, to a whopping 42% average hike in Victoria. Nominal Insurer workers compensation scheme premium rates for FY24 will increase from 1.48 per cent of wages to 1.60 per cent of wages. 

Depending on the associated risk and safety performance of each industry, your premium increase could be even higher than the average rise while other changes include;

  • Workers Compensation Industry Classification (WIC) rates increase by an average of 8% 
  • Employer Safety Incentive (ESI) evolves into the Safe Employer Reward (SER) 
  • Claims Performance Adjustment (CPA) table of rates extended to 600+ 
  • 8% increase to Loss Prevention and Recovery (LPR) claims adjustment factors 
  • Minor changes to Dust Disease Levy (DDL) (as per SIRA’s instruction) 
 

These are pretty substantial changes and will impact every business, therefore it is important to understand the implications, and how to best respond to them. It adds extra costs to running most businesses through increased premiums which should be factored into either product/service pricing and/or profit margin calculations.

icare has received confirmation from the State Insurance Regulatory Authority (SIRA) that they do not oppose the average 8% rate rise for the 2023-24 financial year as stipulated by the NSW Government. In April icare received a direction from the NSW Government that any premium rate increase should be limited to an average of 8% for each of the next three years. 

A premium cap applies where an employer’s premium rate increase is more than 30% from the previous year due to their claims cost or to amendments to the premium methodology. Premium capping does not apply as a result of a change in an employer’s wages, or a change in an employer’s business resulting in a different industry classification being applied. 

What businesses need to have workers insurance?

Workers insurance is compulsory for all NSW employers to cover their workers. As an employer, you’re not required to get an insurance policy only if: you pay $7,500 or less in annual wages you don’t employ an apprentice or trainee you’re not a member of a group for premium purposes. 

For those businesses that do need a policy, it’s important for your accountant in Sydney to consider your business structure to understand the liability implications. For example, not all workers covered by workers insurance are ’employees’. Some people are deemed to be workers for workers insurance purposes. These can include people who are working for you on a contract or through a subcontractor arrangement.

See examples of different categories of who needs to be covered here or our small business accounting team can help you as well.

What premium do businesses need to pay?

Here are the main considerations when working out the premium a business has to pay;

  • To ensure companies are paying the right premium they must declare wages to icare each year. They must declare their actual wages up to four months after their policy renewal date. A business’s wages are an important part of their workers insurance policy and help ensure they are paying the correct premium. 
 
  • Apprentice wages also need to be declared on your client’s wages declaration form as they attract a premium reduction. 
 
  • Sole traders or partnerships who hire a worker need to take out a policy to cover that worker; and they will need personal accident or income protection insurance for themselves. 
 
  • Premiums are capped at 30 per cent. icare compares your premium percentage rate for the renewal against last year’s premium percentage rate. If the percentage difference exceeds 30 per cent, icare will cap it and your client won’t pay any more than this for their policy.
 
Using the latest cloud accounting software can help make the process of managing this type of financial information much easier while a bookkeeper or an accountant can assist when it comes time to prepare & review the information so it can be declared to icare each year. It’s also important to remember that these business costs will also form part of your annual tax return calculations or quarterly BAS submissions too.
 

Why is this such a large rise compared to previous years?

Currently the premium rate is 1.48% of wages which is below the rate required for the scheme to break even with the expected claims costs forecasts for 2023. Premium rate increases are required to support a sustainable workers compensation scheme, ensuring it is able to support injured workers into the future.

Some 78% of the workers compensation premiums collected by icare are paid out in the support of injured workers. If someone is injured at work, icare helps them get back to health and meaningful employment, and pays benefits, including their salary, financial support and medical treatment costs. Around 14% of premiums collected go to operating and service costs, including Claims Service Providers (CSPs) and icare service teams, while a further 8% is the Regulatory Levy that goes to the State Insurance Regulatory Authority (SIRA). 

When will employers have to start paying these new premiums?

The 2023-24 rates are effective for policies renewing on or after 30 June 2023. NSW businesses with a 30 June renewal will begin to receive their worker’s insurance premium notices for the 2023-24 policy year from 31 May onwards. These premiums for the 30 June policies are due for payment on 31 July 2023. icare has recently expanded the availability of monthly installments to any annualised premium of $1000 or over. This provides an additional 130,000 employers access to payments spread over 12 months.

For the vast majority of businesses, an average 8% increase in their workers compensation premiums will cost around $8 per week more on average. However, as this is an average, some businesses will pay more, some will pay less.  A number of employers will be paying less than the 8% average increase, while others will be paying more. The premium rate increase of 8% is an average increase for the scheme across all policy holders. Every industry/business has its own inherent level of risk, so icare applies a premium rate based on the safety performance of each industry over the past five years.

What options do employers have if they cannot afford their premium?

icare has recently expanded the availability of monthly instalments to any annualised premium of $1000 or over. This provides an additional 130,000 employers access to payments spread over 12 months. We also offer discounts for businesses that pay their insurance premium in full, on or before the due date. They reward businesses that create safer, healthier workplaces in NSW. Incentives are available for employers to report incidents early, introduce safety initiatives and support injured workers returning to work

What is the Safe Employer Reward (SER)?

The Safe Employer Reward (SER) is a performance-based reward designed to recognise employers who have safe workplaces and demonstrate good claims performance. There are criteria to obtaining the reward which includes at least three years of policy history and no catastrophic claim charges in the 36 months prior to policy renewal.

Are there other ways to reduce the premium you pay?

Business owners in NSW can access a range of incentives, discounts and other adjustments to help lower the cost of their insurance premiums. icare wants to reward businesses that create safer, healthier workplaces in NSW. Incentives are available for employers to report incidents early, introduce safety initiatives and support injured workers returning to work. They also offer discounts for businesses that pay their insurance premium in full, on or before the due date. The minimum premium payable for any policy is currently $175.

Other incentives include;

  • Apprentice incentive scheme – Under this scheme, if you employ an apprentice, you’re entitled to a premium reduction based on the wages paid to your apprentice.  To be eligible for the reduction you must;
    • Have a valid workers compensation policy
    • Have entered into a Training Services NSW approved contract with the apprentice in a designated trade vocation. The apprentice must be identified in the training contract.
    • We will calculate the apprentice incentive amount based on details you provide

 

  • Avoid paying claim excess by quickly reporting an injury – As an employer, you need to notify your claims service provider (GIO, Allianz, QBE or EML) within 48 hours of becoming aware of a work-related injury or illness. If one of your workers suffers a workplace injury, you can avoid paying a claims excess by notifying us within five calendar days of you becoming aware of the injury. The excess amount is equal to the first week of weekly compensation
 
  • Discounts for premiums paid in full – You are entitled to a discount on your premium if you pay your annual premium in full (on or before the due date). The discount is offered to everyone with a premium of over $175, regardless of your entitlement to instalments. The discount is based on your initial premium payable and will not be adjusted as part of the hindsight premium calculation process, or if wages estimates are adjusted mid-term. The discount rate is subject to change. For small employers, the current discount is 5%. For experience-rated employers the current discount is 3%. If the discounted premium falls below the minimum premium, then the minimum premium applies.
 
  • Safe Employer Reward (SER) – The Safe Employer Reward is a performance based reward for employers whose policy is calculated under the conventional premium formula method. Small employers who have at least three years of policy history and no weekly benefit claims costs or catastrophic claim charges in the 36 months prior to policy renewal will receive an SER premium reduction (7.5% x APP) at renewal. Experience-rated employers who have at least three years of policy history, a Claims Performance Rate (CPR) of less than 100% and no catastrophic claim charges in the 36 months prior to policy renewal will receive an SER premium reduction at renewal. The reward percentage rate is on a sliding scale
 
  • Return to work incentive for experience-rated employers – For claims made against a policy that commences or renews on or after 30 June 2015, a return to work incentive discount (5, 10 or 15 per cent) will be applied to the cost of each claim with a sustainable return to work outcome within 52 weeks of the date of injury. Higher discounts apply to faster return to sustainable work outcomes.
 
  • Performance discount – Experience-rated employers with claims performance better than the Scheme are eligible to receive a performance discount at the end of the policy year. All small employers are eligible to receive a performance discount at the end of the policy year. Note, the Performance Discount applies to conventional policies only and depends on Scheme financial performance. It may not be applied every policy renewal year.

What happens to non-compliant businesses?

Compliance and enforcement activity regarding employers who fail to take out workers compensation insurance is undertaken by the State Insurance Regulatory Authority (SIRA). Employers may be identified by worker’s injury claims, data mining, or anonymous tips and face significant fines and even jail time particularly if there’s been a significant injury.

Can an accountant help a business to manage its workers comp premiums?

If you engage with an accountant that specialises in helping business owners then they should have the right expertise & skills to help you navigate all the necessary requirements. This can include;

  • Calculating premium increases and how the new rates may impact areas within your business.
  • Forecasting what that may change within the business in terms of additional operating costs.
  • Identify gaps in current operational strategies where time & effort could be allocated to reducing workplace injuries, thus reducing the risk of having staff injured.
  • Put in place solutions that can help manage the changes so there isn’t any major impacts to business outputs.
  • Ensure all of these business running costs are calculated correctly for your tax returns.
 
At Fitzpatrick & Robinson we provide a free phone consultation to have a discussion about the help you may need and how our team can make things easier for you. We have experts for example that can review your existing premiums to help identify ways you can save money and reduce what you are paying. This is particularly applicable to businesses that employ people across a number of different awards e.g labour hire companies, manufacturers, construction companies or even aged care facilities.
 
Just a small example of this is we reduced the premiums being paid by around 35% for one company, a saving of $100,000 after our deep did an internal audit to uncover ways they could make changes to their operations.
Rick & Bryn
Rick & Bryn

Experienced accountants who love helping other business owners in Sydney to maximise profits, improve cash flow & grow their business.

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