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Workers Compensation (Work Cover) Audits
- How does Workers Compensation work?
- What is an employer’s premium based on?
- Why do insurance companies conduct audits?
- The formal powers of WorkCover
- What can you expect from the auditor?
- What is expected of you during an enquiry or audit?
- What information may WorkCover request?
- How to prepare for your audit
- Penalties and offences
- Related Link: All Employment Law Solutions website
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.
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.
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.
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.
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.
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.
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).
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.
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.
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.
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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The Quinn Group operates Quinn Consultants, Quinn Lawyers, Quinn Financial Planning and Quinn Financial Solutions. The Quinn Group provides related information in regard to legal, accounting and financial planning issues. Liability limited by a scheme approved under Professional Standards Legislation* *other than for the acts or omissions of financial services licensees.