Chapter 9: Payments â€“ entitlements

WorkCoverSA

Injury and Case Management Manual Chapter 9: Payment – entitlements November 2009

Chapter 9: Payments – entitlements Injury and Case Management Manual

© WorkCover Corporation of South Australia, 2009 Page 2 of 63

Contents

Chapter 9: Payments – entitlements ..................................................................................................................5

Centrelink, other Commonwealth benefits and private garnishees 5 Garnishee orders.........................................................................................................................................5 Federal Government ...................................................................................................................................5 State Government .......................................................................................................................................5 Private and individual companies................................................................................................................5

Payment of settlement monies and Tribunal costs 7 Payment of settlement monies to solicitor’s trust account ..........................................................................7 IRREVOCABLE AUTHORISATION AND INDEMNITY ..............................................................................7 INDEMNITY.................................................................................................................................................7 Payment of Tribunal costs and disbursements ...........................................................................................8

Lump sums 8 Lump sum compensation for non-economic loss (sections 43, 43A and 43B) 9

Prior requirements for a payment..............................................................................................................10 Assessments for permanent impairment ..................................................................................................10 5% threshold .............................................................................................................................................11 Psychiatric disabilities ...............................................................................................................................11 Disfigurement ............................................................................................................................................11 Aggravation, acceleration, exacerbation, deterioration or recurrence of a prior compensable disability .11 Impairments from unrelated disabilities or causes....................................................................................12 Impairments are to be assessed in chronological order ...........................................................................12 Schedule 3A – Total loss, no disadvantage-compensation table .............................................................13 Process for section 43 lump sum determinations .....................................................................................13 Disputes process.......................................................................................................................................16

Deductions to Centrelink, Department of Education, Employment and Workplace Relations and Medicare Australia 17

Centrelink ..................................................................................................................................................17 Department of Education, Employment and Workplace Relations (DEEWR) .........................................17 Medicare Australia (formerly Health Insurance Commission) and section 43 payments .........................17 Payments to Medicare Australia ...............................................................................................................18

Redemption of weekly payments and medical expenses (section 42) 22 General principles .....................................................................................................................................22 Redemption criteria ...................................................................................................................................22 Section 42(2)(e)(iii)....................................................................................................................................22 Approval of redemption .............................................................................................................................23 Limitations to claims agent’s redemption delegations...............................................................................23 Redemption negotiations ..........................................................................................................................23



Prerequisites to a redemption in section 42 of the Act..............................................................................23 Competent professional advice.................................................................................................................23 Competent financial advice .......................................................................................................................25 Consultation with the employer .................................................................................................................27 Certification of incapacity ..........................................................................................................................27 Conditions to making a redemption...........................................................................................................27 Agreement to redemption..........................................................................................................................28 Redemption payments ..............................................................................................................................28 Cessation of weekly payments and/or medical expenses ........................................................................28 Notification to Medicare Australia..............................................................................................................29 Dispute resolution......................................................................................................................................30 Section 58C obligations ............................................................................................................................31 Effect of redemption on weekly payments ................................................................................................31 Effect of redemption on employer’s claims experience.............................................................................32 Processing a redemption ..........................................................................................................................32

Loss of earning capacity assessment (LOEC) 34 Compensation for property damage 34

Discharge voucher – Property damage ....................................................................................................35 Weekly payment entitlements 36

Payments prior to claim determination – interim payments ......................................................................36 Guideline for payment of interim payments ..............................................................................................36 Exemption from employer's liability...........................................................................................................37 Time limit for payment...............................................................................................................................38 Employer defaults on weekly payments....................................................................................................38 Self-employed worker ...............................................................................................................................38 Interest for delay in payment of weekly payments ....................................................................................38 Worker delays ...........................................................................................................................................38 Mutuality ....................................................................................................................................................39 Two or more disabilities ............................................................................................................................39 Tax payable on interest.............................................................................................................................40 Incapacity for work ....................................................................................................................................40 Deeming provision – partial deemed total (for date of injury prior to 1 July 2008) ...................................40

Weekly payments over designated periods 41 Definitions relevant for weekly payments over designated periods ..........................................................41 Designated weekly earnings .....................................................................................................................42 Section 35A(4)(b) – Claims agent does not have the delegation under this section ................................42

Entitlement periods 43 First entitlement period..............................................................................................................................43 Second entitlement period ........................................................................................................................43 Third entitlement period ............................................................................................................................43 Aggregate periods.....................................................................................................................................44



Notice period advising of end of entitlement period..................................................................................44 Entitled to the payment of compensation..................................................................................................44

Work capacity review – section 35B 45 Assessment of work capacity....................................................................................................................45 Determining no work capacity ...................................................................................................................46 Can the worker return to suitable employment? .......................................................................................46 Process for review.....................................................................................................................................47

Application for continuation of payments after expiry of the third entitlement period – section 35C 48 35C Application – Worker not in employment...........................................................................................49

Leave entitlements and effect of an allowance or benefit on weekly payments 49 Period of incapacity counted as period of service.....................................................................................49 Total incapacity greater than 52 weeks ....................................................................................................49 Examples of annual leave entitlements ....................................................................................................50 Leave entitlements under other legislation ...............................................................................................51 Public holidays, rostered days off .............................................................................................................51

Taxation on direct weekly payments (including top-up payments) 52 Tax file declaration ....................................................................................................................................52 Effective tax file number (TFN) declaration...............................................................................................52 14 day rule for worker to provide completed TFN declaration ..................................................................53 28 day rule for worker to provide completed TFN declaration ..................................................................53 What if a worker does not provide a completed TFN declaration .............................................................54 TFN declarations forms to the ATO ..........................................................................................................54 Top-up payments ......................................................................................................................................54 IDEAS flag.................................................................................................................................................55 Calculation of tax deduction ......................................................................................................................55 Taxation on backpay and interest .............................................................................................................55 Tax application principle for backpay and interest ....................................................................................56 Amounts accrued in the current financial year..........................................................................................56 Amounts accrued in previous financial years............................................................................................59 IDEAS, backpay and interest payment processing...................................................................................61

Deduction authorities applied to income maintenance in IDEAS 61 General......................................................................................................................................................61 Child Support Agency (CSA) and Centrelink payments ...........................................................................62 ATO garnishees ........................................................................................................................................62 Payment summaries (previously called group certificates).......................................................................63

Reasonable costs reasonably incurred 63



Chapter 9: Payments – entitlements This section deals with an injured worker’s entitlements to payments for a compensable disability:

• weekly payments of income maintenance

• lump sums

• compensation for property damage.

Centrelink, other Commonwealth benefits and private garnishees

Garnishee orders

A garnishee order (or order for attachment) can be simply described as an action taken in consequence of a right of claim by one party on the money of another who owes that money. For example, the Child Support Agency may serve notice on a claims agent that money needs to be deducted from a worker who is about to receive a lump sum payment for non-economic loss, as that worker owes the Child Support Agency money. The claims agent is required to deduct the amount for the Child Support Agency and pay the balance to the worker.

Generally speaking, garnishee orders will be received from government departments or agencies, though private companies and individuals may also take this action. In each case the rules vary. They are set out below.

Federal Government

Federal Government departments must be given the power to garnishee by legislation. Therefore, where a particular Act gives the relevant Government department the power to garnishee, the claims agent is bound to comply with any request received.

State Government

State Government departments must be given the power to garnishee by legislation. Therefore, where a particular Act gives the relevant Government department the power to garnishee, the claims agent is bound to comply with any request received with the following exceptions:

• Weekly payments and section 42 (redemption) payments are characterised as ‘salary or wages’ and therefore cannot be garnished without the consent of the worker. If however, the relevant Act under which the request is made authorises the garnishee of ‘wages and salary’, a deduction can be made.

• Future entitlements to a lump sum payment can only be garnished if the relevant Act provides specific authority to do so.

Private and individual companies

Where a garnishee order is received from a private individual or company, the order must be approved by the Governor. If not, it should be returned to the creditor advising that the order is unenforceable until it has been issued in accordance with section 10(1) of the Crown Proceedings Act 1992.



Where an order has been obtained in accordance with the above Act, the claims agent may make the necessary deductions with the following exceptions:

• Weekly payments and section 42 (redemption) payments are characterised as ‘salary or wages’ and therefore cannot be garnished without the consent of the worker. If however, the relevant Act under which the request is made authorises the garnishee of ‘wages and salary’, a deduction can be made.

• If a lump sum payment has not been determined by the claims agent a garnishee order is not valid as the money due to the worker must be established prior to the issuing of the garnishee order.



Payment of settlement monies and Tribunal costs

Payment of settlement monies to solicitor’s trust account

If a worker’s solicitor has provided a copy of an ‘Irrevocable authorisation and indemnity’ in the precise terms set out below which is current and signed by the worker, then the case manager must pay the compensation to which it relates to the solicitor’s trust account.

IRREVOCABLE AUTHORISATION AND INDEMNITY

IN CONSIDERATION of my solicitors (name of firm) of (address) acting for me with respect to my claim (specify nature) and agreeing to forebear recovery of any legal fees billed to me for work undertaken in relation to my said claim until settlement (specify payment), I, (name of worker), HEREBY IRREVOCABLY AUTHORISE AND DIRECT Employers Mutual Limited, as agent for the WorkCover Corporation, to make payment of settlement funds (specify the nature of the particular payment as may be relevant) to the trust account of my said solicitors.

I HEREBY ACKNOWLEDGE that such payment wholly discharges the liability of the WorkCover Corporation to me for the said entitlement (specify as above) and I IRREVOCABLY INDEMNIFY the WorkCover Corporation from any further claim, demand or action with respect to such specified payment at any subsequent time.

If the worker’s solicitor does not provide such a document, the compensation is to be paid to the worker direct unless the worker’s solicitor has provided a current general authority signed by the worker (see below for minimum criteria) and the solicitor provides an ’Indemnity‘ in the terms set out below.

INDEMNITY

WHEREAS Employers Mutual Limited, as agent for the WorkCover Corporation, will pay compensation payable to (name of worker ‘the worker’) to (name of firm or solicitor) trust account in accordance with the worker’s current authority (name of firm or solicitor) INDEMNIFIES the WorkCover Corporation if the worker seeks payment direct from the WorkCover Corporation at a later time to the extent of the moneys which (name of firm or solicitor) retained for solicitor / client costs (including disbursements) in the event that the WorkCover Corporation is found liable by a court to pay those moneys to the worker.



The following is an example of a worker authority:

I (name of worker) hereby authorise Employers Mutual Limited to pay compensation payments due to me to my solicitor’s ……………………………………….. (name of firm or solicitor) trust account. DATED THE DAY OF 200 . .................................................. Worker's signature ....................................................................................... Signature of witness .................................................................................................. Print full name of witness (BLOCK LETTERS) ....................................................................................... ....................................................................................... Address of witness

Payment of Tribunal costs and disbursements

Generally, the Tribunal orders will also award costs and disbursements.

On receipt of the Tribunal orders, a recommendation on the claim for costs should be provided by WorkCover’s legal representative acting in the matter.

The claims agent is to pay costs to parties without the need for separate invoice. There is no requirement for the worker’s solicitors to submit a formal invoice or provide a breakdown of their fees unless they are excessive. As the payment made is in settlement of a claim, WorkCover is not entitled to claim any GST on the solicitor’s fees. Therefore, no GST component should be entered into IDEAS for the solicitor’s fees.

NOTE: An invoice is not required to pay the disbursements, however disbursements should not be paid without copies of the service providers’ accounts where they are available.

Lump sums

Lump sums payable under the Act and included in this section are:

• lump sum compensation for non-economic loss – section 43

• redemption – section 42

• Loss of earning capacity assessment (LOEC) – section 42A. From 1 July 2008 no further new LOEC assessments can be made.



Lump sum compensation for non-economic loss (sections 43, 43A and 43B)

Overview –applicable to all determinations of lump sum compensation payments that are made on or after 1 April 2009

Section 43 of the Act entitles a worker to a lump sum payment for non-economic loss, which is defined in section 3 as:

• pain and suffering • loss of amenities of life • loss of expectation of life • any other loss or detriment of a non-economic nature.

There is no obligation under the Act to make a specific application for a section 43 payment – entitlement flows from the original claim, so the claims agent will not require a claimant to make a separate claim for a lump sum. There is no time limit for paying lump sums under section 43 of the Act. Compensation paid to the worker is based on the extent of the worker’s impairment and is expressed as a percentage of whole person impairment (%WPI).

This payment is in addition to any other compensation payable under the Act, and has no effect on other entitlements such as weekly payments, medical expenses and the like. Because compensation under section 43 is an entitlement, the claims agent should commence an assessment as soon as circumstances permit. The claims agent will not delay payment of compensation under section 43 in the redemption negotiation process.

The claims agent must ensure that lump sum entitlements under section 43 are paid when appropriate, because acknowledgement and settlement of entitlements occurring at the earliest appropriate opportunity should lead to workers being able to move forward with return to work processes. This should also result in lower levels of disputes. Furthermore, interest is not payable on the lump sum even if the section 43 determination is delayed without good reason. It is essential that payment of compensation following a determination is made in a timely manner as lump sum compensation is not payable after the death of a worker.

In order to ensure all current claims are assessed appropriately for the existence of a section 43 entitlement, the claims agent will receive a report at the start of each month, summarising active claims which are in receipt of income maintenance with a duration of nine months (from date of incapacity) and where no section 43 payment has been processed during that time. The nine month point has been selected because by that time, in a large proportion of claims, it should be possible to either make a decision about lump sum entitlement, or at least estimate when it is likely that a decision could be made. Case managers are not, however, obliged to wait until receipt of this report to begin to process a worker’s section 43 entitlement. Some injuries may stabilise before or after this point. It is expected that good case management practices will apply to identify potential section 43 entitlements at the earliest opportunity.



Prior requirements for a payment

Before a worker can be paid lump sum compensation under section 43 the claims agent must establish that the disability is:

• ‘permanent’ - means for a long and indeterminate time but not necessarily forever and more likely than not to persist in the foreseeable future

• ‘stable’ - has reached maximum medical improvement (MMI). MMI is generally considered to occur when the worker’s condition has been medically stable for the previous three months and is likely to remain stable for the foreseeable future, with or without further medical treatment (ie, further recovery or deterioration is not anticipated, but it can include temporary fluctuations). If the condition is not stable, the assessor cannot make an accurate assessment of the whole person impairment and should defer the section 43 assessment until the worker’s condition is stable

• ‘compensable’ - only where a compensable disability leads to a permanent impairment will the worker be entitled to a section 43 payment

• ‘residual’ - the worker must be worse off than they would have been but for the injury ie, what is left is less than the whole.

Assessments for permanent impairment

Section 43A of the Act requires assessments for a section 43 entitlement to be:

• made in accordance with the WorkCover Guidelines for the evaluation of permanent impairment. A copy of the WorkCover Guidelines is available at www.workcover.com

The WorkCover Guidelines are based on the Guides to the evaluation of permanent impairment, Fifth edition published by the American Medical Association (AMA5) and the WorkCover Guide for the evaluation of permanent impairment, 3rd edition published by WorkCover NSW.

The WorkCover Guidelines adopt AMA5 in most cases, however there are some differences defined in the WorkCover Guidelines. For example, the WorkCover Guidelines specify that AMA4 should be used to assess the visual system (see chapter 10 of the Guidelines for reasons).

• undertaken by a medical practitioner who is accredited with WorkCover.

Only medical practitioners accredited with WorkCover are able to assess a worker’s level of impairment for the purpose of section 43, and they may or may not be the worker’s treating practitioner. Assessors are accredited according to the various body systems, after they have undertaken the required training and successfully completed a competency assessment for each body system. A current list of accredited permanent impairment assessors and which body system they can assess is available on www.workcover.com.

Before the claims agent can make a determination with respect to a section 43 entitlement, the worker will have been examined by an accredited permanent impairment assessor. The assessor will provide a report to the worker’s case manager that explains:

• their clinical findings • the method used when applying the WorkCover Guidelines to calculate the worker’s %WPI.



5% threshold

There is no entitlement to lump sum compensation if the degree of permanent impairment is less than 5%WPI. Each impairment has to be assessed separately. However, injuries that result from the same traumatic event or in the same calendar year are combined by the accredited assessor and the worker’s entitlement is determined on the final %WPI calculated by the accredited assessor.

Example

A worker has a shoulder injury in 2010 and is assessed as having 3%WPI and then has an ankle injury in 2011 which is assessed at 4%WPI. The worker has no entitlement to compensation because each impairment falls below the 5% threshold.

Example

A worker has a shoulder injury and ankle injury as a result of the same event, or in the same calendar year. The %WPI for the shoulder is 3% and for the ankle is 4%. The %WPI is combined by the assessor using the Combined Values Chart in AMA5 and the worker is entitled to a lump sum payment because the combined %WPI is 7%WPI, which is over the 5% threshold.

Psychiatric disabilities

Compensable psychiatric disabilities entitle a worker to weekly payments, medical expenses and the like but there is no entitlement to lump sum compensation under section 43 for psychiatric impairments.

However, where a compensable psychiatric injury results in a loss of function of a body part contained in the WorkCover Guidelines and the loss of function is permanent, the worker is entitled to compensation under section 43 for that loss of function.

Example

A worker has acute anxiety as a result of which she suffers a partial loss of vision. Although the worker is not eligible for section 43 compensation for the acute anxiety, she is entitled to compensation under section 43 for the loss of vision if the loss is permanent.

Disfigurement

Lump sum compensation for disfigurement is not assessed separately. Scarring is assessed by the accredited assessor when undertaking the assessment for the relevant body system and included in the final %WPI.

Aggravation, acceleration, exacerbation, deterioration or recurrence of a prior compensable disability

Section 43(7) of the Act requires payments made for a previous compensable disability to be deducted if a worker suffers a further impairment as a result of an aggravation, acceleration, exacerbation, deterioration or recurrence of that previous compensable disability. This means that a worker who has had a previous payment for an injury will have the previous amount paid deducted from any entitlement to compensation for the impairment caused by the aggravation.



Example

A worker with a previous back injury received lump sum compensation of $10,000 under section 43 for that injury in 2006. The worker suffers an aggravation in January 2010, which results in a further impairment. The accredited assessor rates the worker’s impairment as 15%WPI in Sept 2010.

15%WPI under the prescribed sum for 2010 is $35,000. The case manager will deduct the previous payment of $10,000 before determining the worker’s entitlement for the aggravation. As a result, the case manager determines the worker’s entitlement to lump sum compensation for the aggravation under section 43(7) to be $25,000 ($35,000 – $10,000).

Impairments from unrelated disabilities or causes

Section 43A(9)(b) of the Act requires accredited assessors to disregard impairments resulting from unrelated disabilities or causes. This means the accredited assessor must exclude impairments that are not related to the disability being assessed. However, a disability that is the result of an aggravation, acceleration, exacerbation, deterioration or recurrence of a prior compensable disability for which a worker has been paid compensation does not constitute an unrelated disability or cause.

Example

A worker has an unrelated disability (a previous knee injury from playing sport, which resulted in removal of some cartilage).The worker then injures their knee at work. The case manager will advise the assessor of the worker’s previous injury when requesting the assessment. The assessor will establish the %WPI for the sports injury and exclude it from the final %WPI. The sporting injury is assessed as 2%WPI and the whole knee injury is assessed at 10%WPI. The assessor deducts the 2% from the total %WPI. The worker is entitled to lump sum compensation for 8%WPI for the compensable disability.

Impairments are to be assessed in chronological order

Section 43A(9)(a) requires impairments resulting from disabilities that occur on different dates to be assessed in chronological order. This means the:

1. accredited assessor must assess and rate the %WPI for each of the compensable disabilities separately

2. case managers will determine the workers entitlement to lump sum compensation under section 43 for each disability separately using the prescribed sum for the relevant injury year.

Example

A worker has two compensable disabilities – a knee injury in Jan 2008 and shoulder in June 2009.

A permanent impairment assessment is requested for both compensable disabilities in Jan 2010. The accredited assessor:

1. assesses the knee and rates the impairment to be 4%WPI

2. then assess the shoulder and rates the impairment to be 7%WPI

3. then provides a report to the case manager outlining the %WPI for each compensable disability.

The case manager determines the worker’s entitlement to lump sum compensation under section 43 for each disability using the prescribed sum for the relevant year. The case manager determines the worker is:



1. entitled to lump sum compensation for the shoulder injury and uses the prescribed sum for 2009 to determine the amount of compensation to be paid

2. not entitled to lump sum compensation for the knee because the impairment rating is below the 5% threshold.

Schedule 3A – Total loss, no disadvantage-compensation table

Section 43B of the Act provides an entitlement to workers who have suffered a total loss (ie, amputation of a limb) or total loss of function under schedule 3A of the Act, the ’No disadvantage – non-economic loss compensation‘. Schedule 3A sets out minimum amounts of compensation a worker is entitled to for the total loss of a body part. For example, the table specifies minimum amounts of compensation for a total loss of speech, a total loss of a foot etc.

However, there is no entitlement under schedule 3A if the permanent impairment is assessed to be less than 5%WPI.

A worker who suffers a total loss listed in schedule 3A and that loss is assessed to be 5%WPI or above is entitled to receive the compensation provided in schedule 3A if it is higher than the amount of compensation that would be paid under sections 43 and 43A.

This means that, when a compensable disability involves a total loss, the case manager must compare the compensation that a worker is entitled to receive for the %WPI under sections 43 and 43A to the entitlement they would receive under schedule 3A in order to determine the worker’s entitlement to compensation. The worker is entitled to receive the higher amount.

Example

In 2008 a worker has an amputation of an arm at the shoulder. This is assessed as 60%WPI, for which they would receive $297,260 applying section 43 and 43A. Under schedule 3A they would receive $215,160. The worker is therefore entitled to $297,260 compensation, which represents the higher amount.

Example 2

In 2008 a worker has an amputation of the ring finger. This is assessed as 5%WPI, for which they would receive $10,000 applying section 43 and 43A. However, under schedule 3A the worker is entitled to $30,340. The worker is therefore entitled to $30,340 compensation, which represents the higher amount.

Process for section 43 lump sum determinations

All determinations made from and after 1 April 2009 will occur as follows:

1. Make the referral

As soon as it becomes apparent that a permanent impairment may result from a compensable disability and the disability appears to be stable, the claims agent should request that a permanent impairment assessment be undertaken by an accredited assessor (unless a worker or their representative has already initiated an assessment).

The accredited assessor can be the worker’s treating doctor. Referrals will be made to an assessor, who has been accredited with WorkCover in the body system(s) relevant to the worker’s impairment.



The case manager must:

• provide the assessor with all relevant medical and allied health information, including results of all clinical investigations related to the impairment that needs to be assessed

• provide the assessor with information on whether the impairment is the result of an aggravation, acceleration, exacerbation, deterioration or recurrence of a previous disability

• clearly state the type of report they are requesting ie, a standard, moderately complex or complex report.

If the case manager is arranging the assessment, they will make the appointment with the assessor, notify the worker of the appointment date and time and provide a copy of the worker information sheet on permanent impairment.

If the case manager would like the permanent impairment assessor to answer questions not directly related to the permanent impairment assessment (ie, questions regarding a worker’s capacity, treatment etc), they must request this separately. However, the worker should not have to attend a separate consultation for the different requests.

Where multiple body systems need to be assessed and more than one accredited assessor is required to undertake the assessments, the case manager will appoint a lead assessor to coordinate the final report, which will include the results for all assessments undertaken. Ideally, the lead assessor should be the assessor who can undertake the majority of the assessments. The case manager will provide:

• the lead assessor with the names of the other assessors and body systems involved

• the other assessors with the name and contact details of the lead assessor so they can provide their reports to the lead assessor.

The consolidated report provided by the lead assessor must have the other assessors’ reports attached.

2. Assessment conducted

At the assessment, the assessor will use the WorkCover Guidelines to determine:

• whether the worker’s compensable disability has resulted in impairment

• whether the compensable disability has reached maximum medical improvement (MMI)

• whether the resultant impairment is permanent

• the degree of impairment that results from the compensable disability

• the proportion of permanent impairment due to any previous disability (compensable or otherwise).

Where only one body part has been affected, it is possible to make only one assessment. For example, if a worker suffers injuries above and below the knee in the same trauma, the assessment would be made of the entire leg at or above the knee. It cannot be assessed as one leg above knee injury and one leg below knee injury.



3. Assessor’s report written

WorkCover has developed a standard report format for permanent impairment assessments. Assessors are required to provide reports to the referrer using this standard format within 10 working days of the assessment being completed (or as agreed between the referrer and the assessor).

The assessor must determine the degree of permanent impairment using the tables, graphs and methodology outlined in the WorkCover Guidelines. The report must include the assessor’s reasons and the final %WPI.

4. Review the report

When the report is received by the claims agent it must be reviewed in order to ensure it is in accordance with the WorkCover Guidelines. Any reports not in accordance with the WorkCover Guidelines will be returned to the provider for amendment. The claims agent cannot make a determination until the report is amended, unless another report in accordance with the WorkCover Guidelines is received in the meantime.

A copy of the report should be sent to the worker within seven days (unless they were the referrer and received the report directly).

4. Make the lump sum determination

The case manager will determine a worker’s entitlement to lump sum compensation under section 43 of the Act based on the report(s) they received from the accredited assessor(s). Reports that do not comply with the WorkCover Guidelines will not be used.

If the report complies with the WorkCover Guidelines and the case manager is satisfied that the %WPI is reasonable, no other report should be requested - regardless of whether the report was requested by the case manager or the worker’s representative. The case manager calculates the amount of compensation the worker is entitled to using the prescribed sum for the relevant injury year.

If more than one report is received and there is conflict between opinions, the case manager will use the report(s) they receive from the accredited assessor and any other relevant and recent documentation as the basis for determining a worker’s entitlement to compensation under section 43. The case manager must document clearly the strengths and weaknesses of each piece of evidence and the degree to which it has been relied upon in arriving at the decision.

5. Notify the worker of the lump sum determination

The claims agent will notify the worker and the employer of:

• the determination made under section 43

• how and when payment will be made

• the consequences of having to pay funds to other parties eg, Centrelink, Child Support Agency, Medicare Australia.

The case manager must also:

1. inform the worker of their review rights and how to exercise those rights



2. save a copy of the determination letters on the worker’s file and on IDEAS, including a detailed breakdown of how the final %WPI was calculated and a note when the %WPI fell below the 5% threshold.

Disputes process

If a worker disagrees with the case manager’s determination and the claims agent cannot settle the dispute with the worker, the worker is entitled to lodge a Notice of Dispute with the Workers Compensation Tribunal (Tribunal), where normal dispute processes apply. If the matter cannot be settled by agreement at conciliation, section 98H(4) of the Act allows the Tribunal to refer the matter to the Medical Panels SA for an opinion,.

The medical panel will issue a certificate, which sets out the reason(s) for the medical panel’s opinion. The opinion of a medical panel is final and binding, irrespective of who referred the matter to Medical Panels SA. The amount of lump sum compensation paid to the worker under section 43 will be calculated on the basis of the medical panel’s opinion.

Important note: A worker’s entitlement, where a dispute is lodged with the Tribunal in respect of a determination made before 1 April 2009 but finalised after 1 April 2009, will be made under the previous section 43.



Deductions to Centrelink, Department of Education, Employment and Workplace Relations and Medicare Australia

Centrelink

Under the Social Security (Administration) Act 1999 Centrelink may request details of payments. When providing information on a section 43 payment, the claims agent must stress that the payment is purely for non-economic loss.

Department of Education, Employment and Workplace Relations (DEEWR)

Under section 23 (7) of the Disability Services Act 1986 (the DSA), DEEWR may recover the costs of a rehabilitation program provided by DEEWR on behalf of the Commonwealth. For the purpose of section 23 of the DSA, the costs may be recovered out of the worker’s lump sum compensation payments (ie, under section 42 and 43) but not out of their ongoing weekly benefits payments.

If a Notice of Charge has been received from DEEWR, the case manager must ensure that, before the lump sum payment is made to the worker, DEEWR is paid first and the DEEWR payment is deducted from the lump sum amount.

Medicare Australia (formerly Health Insurance Commission) and section 43 payments

The Commonwealth Health and Other Services (Compensation) Act 1995, as amended, (the HOSC Act) allows Medicare Australia to ascertain whether Medicare has paid for any of the costs relating to the compensable disability, and if so, to recover those costs. Any section 43 payment above $5,000 is subject to the HOSC Act.

Section 4(1)(d) of the Health and Other Services (Compensation) Act 1995 (the HOSC Act) defines compensation as, among other things:

any other compensation or damages payment, other than a payment under a scheme to which the person has contributed that is made in respect to an injury to a person (whether or not the payment is made to that person).

The definition of compensation is also deemed by Medicare Australia to cover legal fees received by the worker as part of a settlement or judgement. Legal costs covered in a judgement should therefore be included in the amount used to calculate the 10% paid to Medicare Australia. Confusion will arise where the legal costs have not been agreed to at the time of the settlement or judgement. Medicare Australia has accepted that if it is possible to agree, the total of these costs to date at the time of the judgement, those costs should be included in the amount. Their aim is not to create unnecessary delay and confusion, but to recover moneys in a timely and cost-effective manner.

The claims agent will have to act in good faith, and with proper regard to the provisions of the HOSC Act. Our obligation is, as far as possible, to ascertain the total of legal fees and decide the total compensation paid. This may cause prolonged and serious difficulties for the worker, the claims agent and the legal practitioner involved. In these circumstances, Medicare Australia has accepted that underpayments to them could arise where the claims agent makes a decision without the final total legal costs figure being available.



Payments to Medicare Australia

Once a determination of a section 43 payment of over $5,000 is made under the Act, the obligation to advise Medicare Australia arises. There are two ways in which the matter can then be finalised, the ‘advance payment’ option or the ‘Notice of charge’ option.

Advance payment option

(Refer to section 43 flowchart and to advanced payment options flowchart).

This involves paying 90% of the settlement sum (provided the settlement sum is greater than $5,000) to the worker and 10% to Medicare Australia. The 10% is of the gross settlement amount, with any statutory payment, such as to Centrelink or DEEWR, being deducted from the 90% paid to the worker.

The Health and Other Services (Compensation) Act 1995 (the HOSC Act) requires that the worker must be advised in writing that the advance payment option is to be made. When the advanced payment has been forwarded to Medicare Australia, they will contact the worker and make the necessary enquiries leading to the notice of charge. If the amount owing to Medicare Australia is less than the 10% paid, Medicare Australia will reimburse the worker the difference. If the amount is greater than 10% Medicare Australia will pursue the worker for the difference.

For reasons of confidentiality the notice of charge is released only to the worker. It is likely that some workers will present their notice of charge to the claims agent seeking reimbursement for items which they claim are related to the compensable disability. In these situations, if the worker can show (eg, by documented evidence from the provider) that an item on the notice of charge would or should have been paid by the claims agent, the worker should be reimbursed that amount.

Notice of charge option

(Refer to section 43 flowchart and to advanced payment options flowchart).

There is no need for Medicare Australia to be notified prior to judgement or settlement. However, a request for notice of past benefits may be made prior to judgement or settlement, a course of action recommended by Medicare Australia. It is not necessary to notify Medicare Australia where the judgement/settlement amount is less than $5,000. Where the amount exceeds $5,000, Medicare Australia must be notified within 28 days of judgement or settlement.

If there is a current notice of charge held by the claims agent, the advance payment option cannot be used. Where the worker has sought and obtained a notice of charge from Medicare Australia the amount owing to Medicare Australia must be paid before the settlement or judgement is released to the worker.

A notice of charge is current for six months.

Medicare Australia has advised that for its purposes a determination, settlement or judgement (DSJ) does not occur until the relevant appeal period has lapsed. From that date, Health and Other Services (Compensation) Act 1995 (the HOSC Act) allows a maximum of 28 days within which to make the payment to Medicare Australia. However, payment(s) and notification to Medicare Australia should be made immediately all appeal periods plus four days for postage etc, have passed, providing that there is no appeal



lodged against the determination. An appeal lodged at any point delays payment to Medicare Australia until the finalisation of that appeal.

Medicare Australia has first charge on the section 43 payment through the notice of charge/past benefits. Therefore, if the amount in the notice exceeds the entitlement, all of the entitlement must be paid to Medicare Australia. If the amount in the notice is less than the entitlement, the worker is entitled to the difference. Once WorkCover, or its claims agent, have made the payment to Medicare Australia there is no liability to make further payments to Medicare Australia.

Gradually developing disabilities

The Health and Other Services (Compensation) Act 1995 (the HOSC Act) deems a different date to that deemed under section 113 of the Act. This may have an impact in section 43 cases where a payment must be made to Medicare Australia.

For disabilities that have a gradual onset, the HOSC Act deems the date of an injury (which is a disease), is the first day on which professional service was rendered in respect of the disease. ‘Professional service’ is defined in the HOSC Act (Commonwealth). Essentially, it means any scheduled service provided by a medical, dental, optometrical, pathology or diagnostic practitioner.

Section 113, of the Act deals with gradually developing disabilities. Subsection (1) deems that gradually developing disabilities and diseases (not being noise induced hearing loss) occur when the worker first becomes totally or partially incapacitated for work by the disability.

When working out details of payment to be made to Medicare Australia, if the question of date of disability arises, it will be necessary to set a date that complies with the requirements of the HOSC Act, as the Commonwealth legislation takes precedence over State legislation.

The date shall be determined by reference to the date on which the worker first sought treatment from a legally qualified medical practitioner, a dental practitioner or an optician/optometrist.

For the purposes of Health and Other Services (Compensation) Act 1995 (the HOSC Act), a payment to Medicare Australia is a payment to the worker.

There are penalties for non-compliance with the HOSC Act. WorkCover will not accept responsibility for actions taken by the claims agent that are clearly inconsistent with the HOSC Act.

Forms:

• Request for Notice of Past Benefits.

• Notice of Reimbursement Arrangements.

• Notice of Judgement or Settlement.





Notify worker that claim received/determination pending and check file

to ascertain if there is a Notice of Charge/Notice of Past Benefits

Claim made by worker

No claim by worker - WorkCover to make determination

Section 42/43 entitlements greater than or equal to $5,000ADVANCE PAYMENT OPTION (APO)

Is there a current Notice of Past Benefits/

Notice of Charge?No

YESAdvise worker in

writing that APO will be made to Medicare

Australia

Make determination, settlement or judgement

(DSJ)Wait 4/52

NO APPEAL

APPEAL Consent Judgement

Heard and finalised

Wait 2/52 NO FURTHER APPEAL

MAKE PAYMENT TO MEDICARE AUSTRALIA:1. IF NO NOTICE PAY 10% OF DSJ TO

MEDICARE AUSTRALIA2. IF THERE IS A NOTICE, PAY AMOUNT

STATED

PAY THE BALANCE OF THE ENTITLEMENT TO THE WORKER

Worker can take Notice of Charge option if desired.



Redemption of weekly payments and medical expenses (section 42)

General principles

Redemption of both weekly payments and future medical expenses is authorised by section 42(1) of the Act. A redemption payment is a lump sum payment made to a worker in lieu of future payments of weekly income maintenance and/or medical expenses that removes WorkCover’s future liability to make those payments.

Although a primary objective of the Act is to return injured workers to employment, it is recognised that this objective is sometimes best achieved by releasing the worker from rehabilitation obligations and redeeming WorkCover’s liability for ongoing workers compensation entitlements.

Section 42 sets out the basis for an agreement between a worker and WorkCover to redeem a liability through a capital payment to the worker. Notwithstanding the savings in future income maintenance that each redemption might represent, an excessive reliance on redemptions has in the past impacted negatively on scheme performance.

Redemption criteria

The 2008 amendments to the Act include amendments to section 42. Redemption criteria are now included in section 42(2)(e) of the Act, which states that one or more of the following criteria must be met:

• the rate of weekly payments to be redeemed does not exceed $30 (indexed)

• the worker is 55 years old and has been determined to have no current work capacity (refer to section 3(1) for the definition of ‘current work capacity’)

• the worker and the claims agent have jointly applied to the Workers Compensation Tribunal (constituted of a Presidential member) and the Tribunal has determined that continuation of weekly payments to the worker is not in their best interests, from a psychological and social perspective.

These provisions will not apply to all claims until 1 July 2010. However, they will apply as a matter of policy from 1 July 2008 to all claims with a date of injury on or after 1 July 2006. In circumstances where the claims agent has notified a worker, in writing before 1 July 2008, of its intention to enter into redemption negotiations, the above criteria is not required to be met. Claims that are greater than two years old as at 1 July 2008 may, in appropriate circumstances, continue to be redeemed without taking into account the above criteria. From 29 June 2009 the new criteria will apply to all claims less than three years old as a result of the operation of the transitional provisions in the 2008 legislative amendments.

From 1 July 2010 all redemptions will be managed in accordance with section 42(2)(e) of the Act.

Section 42(2)(e)(iii)

Before agreeing to make any application to the Tribunal, pursuant to section 42(2)(e)(iii) of the Act, the claims agent will consult WorkCover.



Approval of redemption

From 1 July 2006 the claims agent has full authority to negotiate, agree and pay redemptions within the delegation limits advised from time to time by WorkCover’s general manager, Scheme Regulation and Compliance (or equivalent authorised officer). WorkCover’s role will be limited to monitoring, evaluating and reporting against agreed targeting and expenditure criteria.

This does not apply to cost neutral redemptions made possible through section 54 recoveries, which are subject to a unique approval process by WorkCover. Cost neutral redemptions are available to the extent that an amount recovered pursuant to section 54 exceeds the amount of compensation paid.

Limitations to claims agent’s redemption delegations

The claims agent has a financial limitation to negotiate, agree and pay redemptions up to $300,000. For redemptions above this amount approval must be obtained from WorkCover before negotiations can commence.

All approval applications must be forwarded to the Manager, Legal & Technical Services.

Operational limitations as a result of the amended Act are yet to be determined.

Redemption negotiations

Either the claims agent or the worker may initiate negotiations in respect of a redemption of weekly payments and/or medical expenses. Where the request is made by the worker, this should be in writing.

Prerequisites to a redemption in section 42 of the Act

Before a redemption can be made, the criteria set out in section 42(2) of the Act, as set below, must be met.

Competent professional advice

A worker must have received competent professional advice about the consequences of the redemption. This advice may be provided by a solicitor or union advocate practising in workers compensation or who represents workers at the Tribunal.

Regulation 12 of the 1999 WRC (General) Regulations provides that WorkCover will indemnify a worker for the cost of obtaining professional advice. The amount is indexed annually. (Refer to the Schedule of Sums). This will only be paid where the claims agent has advised the worker in writing that it is prepared to enter into negotiations for redemption.

The worker is required to provide written evidence of receiving the advice. Following is a suitable form for this purpose:



Professional advice for redemption

Redemption under section 42 of the Workers Rehabilitation and Compensation Act 1986

I ________________________________________ _____________________________ (worker’s name)

have received competent professional advice about the consequences of a redemption payment from

______________________________________________________________________ (adviser's name).

Although not limited to, I have received advice on the following:

• That on receipt of this redemption payment I have no further entitlement to (weekly payments and/or medical expenses) in relation to my compensable disability suffered on (date of injury).

• That on receipt of a redemption payment of weekly payments I am aware of the implications of sections 35(4) and 35(5) of the Workers Rehabilitation and Compensation Act 1986.

• Taxation implications of the redemption payment.

• Centrelink and Department of Education, Employment and Workplace Relations (DEEWR) implications in relation to the redemption payment.

• That on receipt of a redemption payment of medical expenses I will have no entitlement to claim for future expenses, incurred as a result of this compensable disability, from Medicare or my health fund.

................................................ Worker’s name

................................................ Adviser's name

................................................ Address

................................................ Address

................................................ Signature

................................................ Signature

................................................ Date

................................................ Name of employer or company

................................................ ................................................. Address

................................................ Date



Competent financial advice

A worker must have received competent financial advice on the best use or investment of the amount of the redemption payment. Such advice may be provided by a financial planner, counsellor or broker, a practising accountant or a financial institution.

Regulation 12 of the 1999 WRC (General) Regulations provides that WorkCover will indemnify a worker for the cost of obtaining financial advice. This amount is indexed annually. (Refer to the Schedule of Sums). This will only be paid where the claims agent has advised the worker in writing that it is prepared to enter into negotiations for redemption.

The worker is required to provide written evidence of receiving the advice. Following is a suitable form for this purpose.



Financial advice for redemption

Redemption under section 42 of the Workers Rehabilitation and Compensation Act 1986.

I,_________________________________________________________________________

(worker’s name)

have received competent financial advice about the investment or use of the redemption payment from

__________________________________________________________________________

(adviser's name).

Although not limited to, I have received advice on the following:

• A financial management plan that is tailored to my personal circumstances

• A plan that provides me with a secure investment and a reasonable and regular return that ensures the protection of my money

• Taxation implications of the redemption payment.

................................................ Worker’s name

................................................ Adviser's name

................................................ Address

................................................ Address

................................................ Signature

................................................ Signature

................................................ Date

................................................ Name of employer or company

................................................ ................................................ Address

................................................ Date



Consultation with the employer

The claims agent must, wherever practicable, consult with the employer out of whose employment the disability giving rise to the redemption arose. If the employer has ceased trading or gone out of business this requirement may be disregarded. The consultation will include advising the employer:

• that the claims agent is considering a proposal for redemption

• why the claims agent is considering redemption

• the amount and basis of the redemption

• the implications of redemption eg, worker no longer entitled to weekly payments or medical expenses for this disability as future liability is redeemed

• the advantages of the redemption eg, the ability to close the claim and the associated administrative savings, and the employer’s 58B obligations being extinguished

• the disadvantages of the redemption, eg, the redemption amount being considered excessive if the worker returns to work immediately after redemption

• that the employer’s attitude towards a redemption will be considered

• that in the absence of the claims agent receiving any representations from the employer, the claims agent will continue negotiations with the worker

• the impact of the redemption on the employer’s levy, in particular the bonus/penalty scheme implications.

Reasonable time should be allowed for the employer to make representations. Twenty one days is considered a reasonable time.

Certification of incapacity

The claims agent must be able to determine the extent of future liability before entering into a redemption agreement. This requires that a certificate of a recognised medical expert be obtained certifying that the extent of the worker’s incapacity can be determined with a reasonable degree of confidence: that is, whether the incapacity is partial or total, the degree of permanency and the likely duration of the incapacity. This certification should be obtained from the worker’s treating doctor or specialist.

In the case of a medical redemption the certification must include the nature and cost of future medical expenses.

Conditions to making a redemption

General criteria for agreeing to a redemption

There is no time bar for a redemption request. However, before a redemption is considered the following criteria must be met:

• An appropriate return to work path has occurred and is well documented on the claim file.

• If a dispute exists and is in relation to non-compliance with the rehabilitation plan, redemption may not be appropriate until further efforts have been made.

• The injury is stable (further recovery of capacity is not expected).



• The injury is not catastrophic, requiring ongoing compensation and significant medical treatment.

• Arrears of income maintenance should not be included or taken into account in the amount offered to redeem liability.

Agreement to redemption

The amount of a redemption payment is to be fixed by agreement between the claims agent and the worker. Where agreement cannot be reached within three months after the redemption is first proposed, either the worker or the claims agent may apply to the Tribunal for a conciliation conference under section 42(5).

The Tribunal will appoint a conciliator who will hold a conciliation conference in an attempt to resolve the matter by agreement. The conciliator cannot compel an agreement. All relevant information in the possession of the parties as to the reason for the failure to reach an agreement, including any submissions made by the employer, must be disclosed to the conciliator.

Redemption payments

On receipt of a completed redemption agreement, the claims agent must (wherever possible) pay the agreed amount to the worker within five business days. If payment cannot be effected within this timeframe, the claims agent must contact the worker and:

• advise that the payment will be delayed

• explain the reason(s) for the delay

• provide the expected timeframe for making the payment, and

• advise of any actions the worker can take to expedite the payment.

The claims agent must complete a notice of lump sum determination return and forward this, along with a copy of the lump sum determination letter, to WorkCover’s Lump Sum Information Officer. It is imperative that this specifies the section 35(5) weekly rate for reference in any future claims the worker may lodge. The information completed on the notice of lump sum determination return is keyed into a database that WorkCover heavily relies on for future reference.

Cessation of weekly payments and/or medical expenses

A worker ceases to be entitled to weekly payments and/or medical expenses for a compensable disability when the claims agent makes a redemption payment for that particular disability.

It is not necessary to affect a section 36 discontinuance because the worker’s weekly payments are being converted into a lump sum by the redemption. Section 35(5) deems the worker is receiving the weekly payments they would have been receiving had it not been for the redemption. When the quantum of the section 35(5) amount is specified in the agreement that is the amount the worker is deemed to be receiving in the event of a new claim (at which point section 35(4) applies.) Notification of the cessation of weekly payments should be incorporated into the redemption agreement.

Cessation of medical expenses will be effective from the date of the redemption agreement and notification of this should be incorporated into the redemption agreement.



Notification to Medicare Australia

The Commonwealth Health and Other Services (Compensation) Act 1995 (the HOSC Act) allows Medicare Australia to judge whether it has paid for any of the costs relating to the compensable disability, and if so, to recover those costs. Any section 42 payment above $5,000 is subject to the HOSC Act. Section 4(1)(d) of the HOSC Act defines compensation as, among other things:

any other compensation or damages payment, other than a payment under a scheme to which the person has contributed that is made in respect to an injury to a person (whether or not the payment is made to that person).

The definition of compensation is also deemed by Medicare Australia to cover legal fees received by the worker as part of a settlement or judgement. Legal costs covered in a redemption should therefore be included in the calculation of any amount payable to Medicare Australia. Confusion will arise where the legal costs have not been agreed to at the time of the settlement or judgement. Medicare Australia has accepted that if it is possible to agree the total of these costs to date, at the time of the redemption, those costs should be included in the amount. Their aim is not to create unnecessary delay and confusion, but to recover moneys in a timely and cost-effective manner.

The claims agent will have to act in good faith, and with proper regard to the provisions of the HOSC Act. The claims agent’s obligation, as far as possible, is to ascertain the total of legal fees and decide the total compensation paid. This may cause prolonged and serious difficulties for the worker, the claims agent and the legal practitioner involved. In these circumstances, Medicare Australia has accepted that underpayments to them could arise where the claims agent makes a decision without the final total legal costs figure being available.

Once the agreed sum of a section 42 redemption exceeds $5,000, the obligation to advise Medicare Australia arises. There are two ways in which the matter can be then be finalised, the ‘advance payment’ option or the ‘Notice of charge’ option.

The advance payment option

This involves paying 90% of the redemption sum (providing it is greater than $5000) to the worker, and 10% to Medicare Australia. The 10% is of the gross redemption amount, with any statutory payment, such as to Centrelink or DEEWR, being deducted from the 90% paid to the worker.

The Health and Other Services (Compensation) Act 1995 (the HOSC Act) requires that the worker must be advised in writing that the advance payment option is to be made.

Once the advanced payment has been forwarded to Medicare Australia, they will contact the worker and make the necessary enquiries leading to the notice of charge. If any amount claimed to be owing to Medicare Australia is less than the 10% paid to it, Medicare Australia will reimburse the worker the difference. If the amount is greater than 10% Medicare Australia will pursue the worker for the difference.

For reasons of confidentiality the notice of charge is released only to the worker. It is likely that some workers will present their notice of charge to the claims agent seeking reimbursement for items which they claim are related to the compensable disability. In these situations, if the worker can show (eg, by



documented evidence from the provider) that an item on the notice of charge would or should have been paid by the claims agent, the worker should be reimbursed that amount.

Notice of charge option

There is no need for Medicare Australia to be notified prior to agreement. However, a request for notice of past benefits may be made prior to agreement, a course of action recommended by Medicare Australia.

It is not necessary to notify Medicare Australia where the agreement amount is less than $5,000. Where the amount exceeds $5,000, Medicare Australia must be notified within 28 days of agreement.

If there is a current notice of charge held by the claims agent, the advance payment option cannot be used. Where the worker has sought and obtained a notice of charge from Medicare Australia the amount owing to Medicare Australia must be paid before the redemption amount is released to the worker.

A notice of charge is current for six months.

Medicare Australia has advised that for its purposes a determination, settlement or judgement (DSJ) does not occur until the relevant appeal period has lapsed. From that date, the Health and Other Services (Compensation) Act 1995 (the HOSC Act) allows a maximum of 28 days within which to make the payment to Medicare Australia. However, since redemptions are by agreement from which there is no appeal, payment(s) and notification to Medicare Australia should be made immediately an agreement has been reached.

Medicare Australia has first charge on the section 42 payment through the notice of charge/past benefits. Therefore, if the amount in the notice exceeds the agreed amount, all of the redemption must be paid to Medicare Australia. If the amount in the notice is less than the redemption, the worker is entitled to the difference. When WorkCover or its claims agent has made the payment to Medicare Australia there is no liability to make further payments to Medicare Australia.

General

For the purposes of the Health and Other Services (Compensation) Act 1995 (the HOSC Act), a payment to Medicare Australia is a payment to the worker.

There are penalties for non-compliance with the HOSC Act. WorkCover will not accept responsibility for actions taken by its claims agent that are clearly inconsistent with the HOSC Act.

Dispute resolution

As redemption agreements are not determinations of WorkCover they are not reviewable under section 89A of the Act. If a worker or employer lodges a notice of dispute the claims agent will submit that the Tribunal has no jurisdiction to hear the matter.

Section 97(2)(a) specifically excludes redemptions from consideration under the expedited decision provisions of the Act. If an application is made by a worker under section 97 of the Act regarding a redemption, the claims agent will refer the Tribunal to section 97(2)(a) and oppose the costs of the application and hearing on the basis that the proceedings are frivolous and vexatious.



Section 58C obligations

A termination of the employment of a worker who has received a redemption of weekly payments should be automatically accepted under section 58C providing that 28 days written notice has been given to both the worker and WorkCover.

Effect of redemption on weekly payments

Where a worker lodges a subsequent claim for weekly payments after receiving a redemption, section 35 provides (in part) as follows:

(4) A worker is not entitled under this Division to receive, in respect of two or more disabilities, weekly payments in excess of the worker’s notional weekly earnings.

(5) If a liability to make weekly payments is redeemed, the worker is taken, for the purposes of this Division, to be receiving the weekly payments that would have been payable if there had been no redemption.

The total of the weekly payments to which a worker is entitled from the current claim and the section 35(5) amount from the redeemed claim cannot exceed the notional weekly earnings (section 35(4).) Lloyd’s case (Lloyd v WorkCover [2004] SAWCT 59) established that the notional weekly earnings referred to in section 35(4) is the higher of the notional weekly earnings of the current and the previously redeemed claim (adjusted pursuant to section 39 to the date the latest disability was sustained – see below.) If there has been more than one previous redemption, then it is the highest of all. If the notional weekly earnings for any redeemed claim is higher than that for the current claim, the former becomes the cap that the total cannot exceed for the purpose of section 35(4).

Lloyd also confirmed that each notional weekly earning amount from prior redeemed claims must be adjusted by the mechanism set out in section 39 for each year up to the date of the last injury. These adjustments must be calculated to determine which is the highest notional weekly earnings, and this must occur before the calculator referred to below is used.

Please note that the Lloyd decision refers to sections 35(6) and 35(6a) of the Act. From 1 July 2008 these sections have been replaced with sections 35(4) and 35(5).

The calculator in AgentNet correctly calculates entitlements in such cases. Any other versions of this calculator case managers have must not be used. The notional weekly earnings in line A of the calculator is that for the current claim. Where the total of the section 35(5) amount from a previously redeemed claim plus the entitlement for the current claim (taking into account any actual or deemed earnings and allowing for appropriate reductions) exceeds the higher notional weekly earnings, then the current entitlement is reduced by the excess. If the total does not exceed the larger notional weekly earnings there is no reduction.

The acceptance letter sent to the worker and the new employer should advise the income maintenance to be paid and the basis for the calculation. However, should the new employer seek further information, for example the amount of redemption or any other aspect of the previous claim, it should be refused pursuant to section 112 of the Act.



Effect of redemption on employer’s claims experience

Redemptions may be taken into account for the purposes of WorkCover’s bonus/penalty scheme. The equivalent weekly rate of the redemption may be added to the experience of the employer for the number of weeks remaining in the relevant window.

Processing a redemption

Once redemption has been approved and agreed to by all parties, the following procedure applies:

1. Ensure that all the terms of the agreement are clearly set out in writing to the worker’s representative (IDEAS standard letter REDPROP.1 found in the redemptions folder.)

2. Ensure that the redemption agreement is produced and signed by all parties (IDEAS standard letter REDAGREE.1 found in redemptions folder. If the redemption is a medical expenses only redemption REDME.1 standard letter can be used or in the case of a redemption of weekly payments only REDIM.1 standard letter is appropriate.)

3. Ensure Notice of Judgement or Settlement is produced and signed by both parties.

4. Ensure that the section 33A Notice to Claimant is produced and signed by the worker (IDEAS standard letter RED33A.1 found in redemptions folder.)

5. Ensure that signed attachments to the agreement have been received ie:

a. medical certificate

b. professional advice certificate

c. financial advice certificate.

6. Ensure that the Redemption Checklist is produced and used by the case manager to ensure that all items on the Checklist relevant to the particular settlement have been signed off. The first section of the Checklist must be referred to and reflected to the extent relevant in the letter of offer to the worker’s representative (IDEAS standard letter REDCHECK.1.) The second part of the Checklist must be fully completed and signed off by the claims manager prior to any payment being made to the worker.

7. Ensure that a Centrelink clearance has been obtained (no payment is to be made unless clearance has been obtained.)

8. If a Notice of Charge has been received from Centrelink ensure that a payment is made to Centrelink and this amount is deducted from the redemption amount.

9. If a Notice of Charge has been received from DEEWR, the case manager must ensure that, before the lump sum payment is made to the worker, DEEWR is paid first and the DEEWR payment is deducted from the lump sum amount.

10. Has a Notice of Charge been received from Medicare Australia?

11. If Yes: ensure that payment is made to Medicare Australia and this amount is deducted from the redemption amount.



12. If No: If the total payment is more than $5,000 then the 10% withholding amount must be deducted and forwarded to Medicare Australia. The 10% withholding amount should be processed against the REDME payment type and any balance against the REDWP or REDLO payment types.

13. Process payment on IDEAS:

a. for income maintenance redemptions payment type is REDWP

b. for medical redemptions payment type is REDME

c. for cost neutral redemptions payment type is RECWP (weekly payments) and RECME (medical expenses)

d. once payment has been processed enter Redemption Payment Restriction (stops payment on the redeemed claim and is an information alert on other claims.) Restriction templates are available for medical only redemptions or income and medical redemptions.

e. a comment must also be entered on IDEAS restrictions screen detailing the section 35(5) amount.



Loss of earning capacity assessment (LOEC)

Legislative changes commencing on 1 July 2008 provide for the deletion of section 42A and 42B of the Act. Section 42A authorised the claims agent to make lump sum payments to workers by assessing their loss of future earning capacity as a capital loss. The deletion of this section of the Act means that from 1 July 2008 no further new LOEC assessments can be made.

The transitional provisions of the amending Act enable sections 42A and 42B of the Act to continue to apply to assessments made by the claims agent (or a self-insured employer) under section 42A of the Act before 1 July 2008.

Compensation for property damage

Section 34 provides that where a worker suffers a compensable disability, and suffers loss or damage to therapeutic appliances, clothes, personal effects or tools of trade as a result of the same trauma out of which the disability arose, the worker is entitled to be compensated for that loss or damage. The amount of this compensation is limited by Regulation 6 of the 1999 WRC (General) Regulations. Where a claim for damage to tools of trade exceeds $2,000 the claims agent must have the damage assessed and obtain a recommendation from the assessor regarding settlement.

In assessing a claim for compensation for property damage the claims agent must take into account depreciation. For example, a worker who has a pair of work boots valued at $100 with an expected life of two years would receive $50 if the boots were damaged beyond repair after one year.

All claims for property damage must be confirmed by the employer except where the loss occurs away from the worksite, in which case a worker must provide proof of the damage such as supplying the damaged article. Damage to motor vehicles is excluded from compensation under this section.

Where compensation for property damage is paid to a worker, the worker must sign a discharge voucher. A sample document appears below:



Discharge voucher – Property damage

Discharge for payment of property damage paid pursuant to section 34 of the Workers Rehabilitation and Compensation Act 1986.

Reference: claim number __________________

I, ________________________________________________________________________ of

__________________________________________________________________________

hereby accept the sum of _____________________________________________________

being full and final settlement of the damage to __________________________ items of property (as listed below) as a result of my compensable disability suffered on ____ /____ / ____ whilst in the employ of

Item 1: Amount:

Item 2: Amount

Item 3: Amount:

Item 4: Amount:

Item 5: Amount:

Item 6: Amount:

Item 7: Amount:

Item 8: Amount:

Total Amount:

Signed: _________________________________________________ Dated: _____ / _____ / _______

Witnessed: ______________________________________________ Dated: ______ / _____ / ______



Weekly payment entitlements

Where a worker suffers a compensable disability that results in incapacity for work, the worker is entitled to payment of income maintenance (or weekly payments) in accordance with Division 4 of the Act (ie, sections 35, 35A, 35B and 35C).

Payments prior to claim determination – interim payments

The claims agent has discretion to make interim payments of compensation to the worker pending the determination of the claim (ie, the period between the expiry of the provisional liability payments (see chapter 3a) and the determination of the claim).The purpose of the payments is to ensure that the worker does not suffer financial hardship or emotional stress due to a lack of income.

Compensation means ‘any monetary benefit payable under the Act’ and may include a payment for weekly payments, medical and like expenses (section 32), initial transport costs (section 33), and property damage (section 34).

The claims agent must ensure that the worker clearly understands that interim payments made do not constitute an admission of liability and if the claim is subsequently rejected all interim payments made will be recovered from the worker.

The payment made is generally set at the worker’s average weekly earning amount.

Guideline for payment of interim payments

The claims agent may exercise discretion to make interim payments to the worker in the following circumstances:

• The worker is suffering financial hardship or emotional stress due to a lack of income, and

• The determination is delayed pending the outcome of further investigations.

The claims agent can make the payments directly or authorise the employer to make payments to the worker. The employer will be reimbursed for any payments made.

The claims agent may exercise discretion not to make interim payments in the following circumstances:

• The claim is for a disability arising from a journey accident where the worker must show a real and substantial connection between employment and the accident (section 30(5)(b) applies).

Example:

The worker is injured on the way home from work and, for the claim to be accepted, they must show a real and substantial connection between employment and the accident.

Note: Where a claim is for a journey between the worker’s place of employment and a medical appointment for the purposes of obtaining treatment etc for a compensable disability, the journey would be considered to be 'carrying out duties of employment’ (section 30(5)(a) and interim payments may be offered.

• Evidence suggests that the claim will most likely be rejected. (eg, serious allegation of fraud).

Each case must be considered on its merits when discretion is being exercised.



Payments by employers

The worker’s employer is liable to pay the income maintenance payments for the first two weeks or for the whole period of incapacity if less than two weeks (see below for exceptions). In section 46 of the Act ‘incapacity’ means a reduced physical or mental capacity, by reason of a compensable disability, for actually doing work in the labour market in which the worker was working or might reasonably be expected to work, which results in an actual loss of earnings. Accordingly, an employer is liable to pay compensation by way of income maintenance in an amount up to twice the worker’s average weekly earnings during any calendar year, irrespective of the period or periods of such incapacity (provided those periods do not in aggregate exceed two weeks.) This liability applies equally whether the worker is suffering from a partial incapacity for work or a total incapacity for work in the sense described ie, an incapacity that results in a loss of earnings.

The two weeks absence is set by reference to either the sum of the hours absent from work or payments that total in dollar value twice the average weekly earnings in a calendar year (January to end of December).

Where the employer pays income maintenance in respect of a disability that did not arise from employment by that employer, that employer may recover the amount of the payment from the claims agent under section 46(7). The claims agent may in turn recover that amount from:

• the employer from whose employment the disability arose, or

• if it appears that the worker was not entitled to that compensation, from the worker.

Where the claims agent pays income maintenance to a worker who was not in employment when the incapacity for work arose, it may recover the amount payable from the employer from whose employment the worker’s disability arose.

Exemption from employer's liability

An employer is exempt from the liability to pay the first two weeks of income maintenance if:

• the claims agent is satisfied the employer

i) has complied with their responsibilities under section 52(5) within two business days

and,

ii) if requested by the claims agent to provide AWE information has provided the information to the claims agent within two business days of receiving the request

• the disability is coded as being 'unrepresentative'

• the employer has taken a ‘buy out’ option under section 49

• the employer is participating in the RISE scheme and the worker’s disability arises from the aggravation, acceleration, exacerbation, deterioration or recurrence of the disability to which the worker’s participation in the RISE scheme can be attributed. (Refer to Regulation 16 of the 1999 WRC (General) Regulations

• the employer is exempted from requirement to be registered by Regulation 8 of the 1999 WRC (Claims and Registration) Regulations



Time limit for payment

The employer is required to pay the income maintenance within 14 days after the date of the claim, unless the claim is being disputed. If a claim for compensation is being disputed the employer is not obliged to make payment until the dispute has been determined. (Refer to section 46(6).

Employer defaults on weekly payments

The claims agent is required to pay weekly payments to the worker on behalf of the employer where that employer fails to do so. In this case the claims agent may recover the amount from the employer as a debt. A $50 administrative fee is also payable by the employer (Regulation 18 of the 1999 WRC (General) Regulations prescribes this fee. Refer also to section 48).

The claims agent should encourage the worker’s employer to continue making direct payments to the worker wherever possible for the following reasons:

• the employer remains involved in the management of the claim

• communication between the employer and the worker is maintained

• it helps to promote and facilitate the return to work process

• it is administratively more effective.

Where the employer makes direct weekly payments to the worker the claims agent will reimburse the employer provided the request for reimbursement is made within three months of the date of payment. If the request is outside this period, WorkCover or the claims agent must reject the reimbursement unless there is a satisfactory explanation for the delay.

Income maintenance reimbursement slips are available online at workcover.com or from WorkCover.

Self-employed worker

A self employed worker is not entitled to income maintenance by virtue of section 46(9).

Interest for delay in payment of weekly payments

Section 47 of the Act provides that if a weekly payment, or part of a weekly payment, is not paid to an injured worker, or if a weekly payment is delayed pending resolution of a dispute under the Act, then interest at the prescribed rate will be paid on the arrears.

Regulation 17 of the 1999 WRC (General) Regulations provides that the interest payable in such circumstances is to be paid at the prime bank rate for the financial year in which the amount went into arrears. To find out what this amount is refer to the Schedule of Sums.

Worker delays

The only situation in which interest is not paid on arrears is where the delay is the fault of the worker. (Refer to section 47(2).) Where the worker causes delay in the payment of weekly payments the period of the delay should be identified clearly and the issue of interest included in the issues to be resolved by the legal provider or dispute resolution officer attending the Tribunal. Settlement of the issue of interest should be clearly included in consent orders. Payment of interest can then be made accordingly.



Where interim payments are made pending the determination of the claim and the claim is subsequently accepted, the interim payments satisfy the liability to pay weekly payments and interest is not payable. However, if the interim payments are less than the worker’s weekly payment entitlement interest will accrue on the difference between the amount paid to the worker by way of interim payments and the worker’s weekly payment entitlement.

Should a worker delay lodging a claim for workers compensation, the date on which the claim for compensation is lodged is to be regarded as the date from which interest is paid.

Below are a number of examples of delays by a worker, or his or her representative, which could result in no interest being paid to the worker.

Example one:

Failure to cooperate in claim investigation eg, the worker fails to attend medical appointments without reasonable cause, thereby delaying the determination or reconsideration of the determination.

Example two:

An unreasonable delay in lodging a Notice of Dispute. If the Workers Compensation Tribunal accepts a worker’s Notice of Dispute, even though it is lodged after the required timeframe, the delay is not considered to be unreasonable. If the Tribunal does not accept a worker’s Notice of Dispute that has been lodged after the required timeframe, the delay is considered to be unreasonable.

Example three:

Numerous adjournments initiated by the worker without a valid reason. For example, if the worker seeks an adjournment in order to complete a task eg, providing discovery, when a previous adjournment has been granted for this purpose, and there is no valid reason for failure to complete the task.

Example four:

Obtaining further and unnecessary expert reports when there is a sufficient body of expert reports to enable the parties to resolve the dispute or proceed to judicial determination.

Example five:

Non-attendance by the worker, or their representative, without a valid reason, at conciliation conferences or hearings in the Tribunal.

Mutuality

Where an offer of suitable employment has been made to a partially incapacitated worker, and where that worker refuses or demonstrates an unwillingness to work, the worker may have breached the obligation of mutuality.

The employer’s obligation to provide suitable employment is a continuing one. (Refer to section 58B and C).

Two or more disabilities

Although a worker may suffer from two or more disabilities, section 35(4) prevents a worker from receiving weekly payments in excess of the worker’s notional weekly earnings.



Where a worker suffers incapacity from two or more disabilities the claims agent should manage the claims concurrently. Section 38 and 39 and 35B work capacity reviews are to be conducted on each claim at the appropriate time.

Tax payable on interest

For information on taxation on interest and arrears of interest, see the following section on taxation.

Incapacity for work

Incapacity for work means any reduction in the worker’s ability to earn wages in work which the worker was doing or could reasonably be expected to do before the onset of the disability. See Arnott’s Snack Products Pty Ltd v Yacob 1985 (155 C.L.R 171.)

In Steven’s Commercial Furniture v Stanley A5/1996 it was found that:

• a partial incapacity for work can exist where the worker, although suffering from a disability, continued to work at his usual duties and suffered no economic loss

• the actual economic consequences of the disability are irrelevant. It is the potential inability to sell one’s labour in the open labour market that is the point.

Incapacity can be:

• total, ie worker has no current work capacity (see below for definition).

• partial, worker has a current work capacity (see below for definition).

• partial treated as total for the purposes of calculating entitlements to weekly payments

• masked by a return to work and not linked to the loss of wages (it is linked to the loss of the ability to earn wages even though there is no actual financial loss.)

Sometimes a worker may be suffering from other disabilities in addition to the compensable disability. The essential factor to be determined is whether the disabling effects produced by the compensable disability are a contributing cause (not necessarily the only cause) of the incapacity. Depending on the outcome of such enquiry the worker may cease to be entitled to weekly payments.

Deeming provision – partial deemed total (for date of injury prior to 1 July 2008)

Section 35(2)(b) states that in the first two years of incapacity, partial incapacity for work is treated as total incapacity unless the claims agent establishes that suitable employment is reasonably available to the worker.

Section 35(2)(c)(ii) states that where the period of incapacity exceeds two years, the onus is on the worker for partial incapacity to establish that they are unemployable because suitable employment of the relevant kind is not commonly or widely available to a person in the worker’s circumstances, irrespective of the state of the labour market.

The onus is on the agent to establish that the worker’s weekly payments can be lawfully reduced on the basis the worker is earning or capable of earning. If the worker establishes that they are unemployable as per section 35(2)(c)(ii) they will continue to receive weekly payments as if they were totally incapacitated for



work ie, the worker’s partial incapacity will continue to be deemed total and the worker will be entitled to weekly payments equal to 80% of the worker’s notional weekly earnings.

NOTE: Section 35 of the current Act was repealed on 1 July 2008. However, the section 35 (old provisions) will continue to apply to the calculation of entitlements to compensation, in respect of the first two years of incapacity arising from compensable disabilities sustained before 1 July 2008 (including the reduction of weekly payments to 80% of notional weekly earnings at the end of the first year of incapacity and for second and subsequent year reviews). (Refer to Chapter 10 for information about first year and second year reviews.)

Weekly payments over designated periods

Section 35A of the Act provides that injured workers are entitled to receive weekly payments, at different rates, over designated periods known as entitlement periods. There are three entitlement periods.

The amount of weekly payments a worker will receive, if any, during each entitlement period will also depend on whether or not they have a current work capacity or no current work capacity.

Definitions relevant for weekly payments over designated periods

The following definitions, in section 3, are relevant when determining entitlement to weekly payments.

“current work capacity, in relation to a worker, means a present inability arising from a compensable disability such that the worker is not able to return to his or her employment at the time of the occurrence of the disability but is able to return to work in suitable employment;”

“no current work capacity, in relation to a worker, means a present inability arising from a compensable disability such that a worker is not able to return to work, either in his or her employment at the time of the occurrence of the disability or in suitable employment;”

“suitable employment, in relation to a worker, means employment in work for which the worker is currently suited, whether or not the work is available, having regard to the following:

(a) the nature of the worker’s incapacity and previous employment;

(b) the worker’s age, education, skills and work experience;

(c) the worker’s place of residence;

(d) medical information relating to the worker that is reasonably available, including in any medical certificate or report;

(e) if any rehabilitation programs are being provided to or for the worker;

(f) the worker’s rehabilitation and return to work plan, if any;”

“total incapacity for work is the incapacity for work that is represented by a worker having no current work capacity within the meaning of this Act;” and

“partial incapacity for work is the incapacity for work that is represented by a worker having a current work capacity within the meaning of this Act.”



Designated weekly earnings

Designated weekly earnings are:

• the worker’s current weekly earnings earned in employment or self-employment, or

• earnings the claims agent determines a worker could earn (including, but not limited to, the amount of any current weekly earnings) either in the worker’s pre-injury employment or in suitable employment that the claims agent determines the worker is capable of performing despite the disability

whichever is the greater, but not including a prescribed benefit. (Refer to section 35A(4)(a) and (b) and to section 35A(6)of the Act.)

The claims agent cannot make a determination in accordance with section 35A(4)(b) in respect of a worker who has a current work capacity during a period they are incapacitated for work and:

• the employer has not provided the worker with suitable employment and the worker is making every reasonable effort to return to work in suitable employment, or

• the worker is participating in a rehabilitation and return to work plan which prevents him/her from returning to employment.

(Refer to section 35A(5) of the Act.)

Section 35A(4)(b) – Claims agent does not have the delegation under this section

The claims agent does not have the delegation to make a determination applying the provisions of section 35A(4)(b) of the Act in so far as that provision relates to the designated weekly earnings of a worker taken to be the earnings that the worker could earn from time to time in employment that WorkCover determines the worker is capable of performing (deeming provisions). This does not affect the application of section 35A(4)(b) in so far as that provision relates to ‘current weekly earnings’. If there is a particular case where the claims agent wants to make a determination under this section a case must be presented to the General Manager, Workplace Injury for approval.

The authority to approve such an application sits at Board level and the Board may not delegate its power under this section so approval may take some time to progress. The Board will only exercise this power as a matter of last resort in circumstances that are considered to be particularly special and compelling.

NOTE: This restriction on the application of the deeming provisions by a claims agent extends to the application of section 35A(4)(b) during the first, second and third entitlement periods referred to in section 35(8).



Entitlement periods

First entitlement period

Section 35(8)(a) of the Act states that the first entitlement period is an aggregate period, not exceeding 13 weeks (whether or not consecutive) for which a worker has an incapacity for work and for which they are entitled to be paid compensation. For the first entitlement period an injured worker is entitled to:

• weekly payments equal to 100% of their notional weekly earnings if they have no current work capacity

• weekly payments equal to 100% of the difference between their notional weekly earnings and their earnings or designated weekly earnings, where the worker has a current capacity for work.


Second entitlement period

Section 35(8)(b) of the Act states that the second entitlement period is an aggregate period, not exceeding 13 weeks (whether or not consecutive) beginning after the end of the first entitlement period, for which a worker has an incapacity for work and for which they are entitled to be paid compensation. For the second entitlement period an injured worker is entitled to:

• weekly payments equal to 90% of their notional weekly earnings where the worker has no capacity for work

• weekly payments equal to 90% of the difference between the worker’s of notional weekly earnings and their earnings or designated weekly earnings, where the worker has a current capacity for work.


Section 35A(5) also applies to this period of entitlement.

Third entitlement period

Section 35(8)(c) of the Act states that the third entitlement period is the aggregate period, not exceeding 104 weeks, commencing after the end of the second entitlement period (whether or not consecutive) for which a worker is incapacitated for work and for which they are entitled to the payment of compensation. For the third entitlement period an injured worker is entitled to:

• weekly payments equal to 80% of their notional weekly earnings where the worker has no capacity for work

• weekly payments equal 80% of the difference between their notional weekly earnings and their earnings or designated weekly earnings where the worker has a current capacity for work.


Section 35A(5) also applies to this period of entitlement.



Aggregate periods

A week count, not a day count is required when determining entitlement periods and calculating the rate of a worker’s entitlement to weekly payments. For the purposes of counting weeks, a ‘week’ is taken to be the period Sunday to Saturday.

Each week in which a worker is entitled to a payment of compensation, whether consecutive or not, should be counted as one week for the purposes of calculating 13 weeks, 26 weeks, 104 weeks and 130 weeks.

Example

A worker ceases work due to a compensable disability on a Thursday and remains incapacitated throughout the next week, returning to full pre-injury duties the following Tuesday. When at work the worker is earning the same as or more than their notional weekly earnings.

Week 1 – Thursday and Friday

Week 2 – Monday to Friday

Week 3 – Monday

Therefore, for the purposes of calculating a worker’s aggregated entitlement period, in the above example, the worker is entitled to or has received weekly payments in three weeks.

Notice period advising of end of entitlement period

Information about how much notice must be given to a worker advising that their first, second or third entitlement period has ended is contained in Chapter 10. Refer also to sections 36(3a) and 36(3B) of the Act.

Entitled to the payment of compensation

The term ‘entitled to the payment of compensation under this Act on account of that incapacity’ in section 35(8) must be considered when aggregating entitlement periods. Where a worker has been incapacitated for work in any given week, resulting in a loss of remuneration paid by either the employer or WorkCover, or not paid at all, that week counts as one week of an entitlement period. This is irrespective of whether, if the compensation was paid by an employer, the employer has sought reimbursement from WorkCover of the compensation paid.

Example 1

Worker is on restricted duties from Monday to Friday, receiving medical treatment and working and being paid for full hours. The worker has a partial incapacity for work but the incapacity does not result in any loss of remuneration

During such period the worker has no entitlement to a weekly payment and therefore it does not count as a week.

Example 2

Worker is on restricted duties Monday to Friday working six hours per day out of a normal eight hour day. Employer is paying worker wages for six hours and compensation for two hours but has not claimed income



maintenance reimbursement from WorkCover for the two hours per day for which the worker is entitled to receive compensation.

Worker is entitled to and is paid compensation for the ten hours in that week, irrespective of whether the employer claims reimbursement from WorkCover. Therefore, in this example, the worker has accumulated one week of their entitlement period.

Work capacity review – section 35B

Section 35B(1) of the Act provides that a worker’s entitlement to weekly payments ceases after they have received or are entitled to receive weekly payments for an aggregate period of 130 weeks (whether consecutive or not) ie, after the end of the third entitlement period (unless their entitlement ceased before this time under another provision of the Act) unless the worker is assessed by the claims agent as

(a) having no current work capacity and

(b) likely to continue indefinitely to have no current work capacity.

(Refer to section 35B(1) of the Act.)

However, section 35B(4) states: “…a worker who, immediately before the end of a third entitlement period, is in receipt of weekly payments under paragraph (a) of section 35A(3) is entitled to continue to receive weekly payments at the rate prescribed by that paragraph unless or until [the claims agent] has assessed whether the worker falls within the category of a worker who may be considered as—

(a) having no current work capacity; and

(b) likely to continue indefinitely to have no current work capacity”.

In other words, if a worker is receiving payments immediately before the end of the third entitlement period on the basis that they have no work capacity, those weekly payments cannot be discontinued unless and until an assessment pursuant to section 35B(1) has been completed.

Section 35B(5) allows for the assessment pursuant to section 35B(1) to be made before or after the end of the third entitlement period.

Assessment of work capacity

The assessment of work capacity, if a worker is approaching the end of the third entitlement period, should be considered after reviewing all the information obtained during the normal case management and rehabilitation process. In assessing a worker’s work capacity the claims agent should consider the following information if available:

• treating medical practitioner(s) opinion

o all disabilities including work related and non work related (eg, colour blindness, dyslexia)

o capacity to work including hours

o current restrictions

o prognosis for the future re: capacity for improvement, need for future treatment or surgery



• independent medical examiner(s) opinion

o same as for treating medical practitioner(s) opinion

• vocational assessments

o prior work history, education, literacy and numeracy

o skills and qualifications

o training courses completed

o suitable employment identified.

• functional capacity evaluations

o functional abilities and restrictions

o endurance levels.

• rehabilitation reports

o work trials and work hardening

o RTW progress

o job seeking.

• any other information that would assist in determining the worker’s work capacity.

Determining no work capacity

For a worker to continue to receive weekly payments of compensation past the end of the third entitlement period under section 35B, the claims agent must determine that the worker

• has no current work capacity, and

• is likely to continue indefinitely to have no current work capacity.

The Australian Oxford Dictionary defines ‘indefinitely’ as ‘for an unlimited time’. It is considered this word also means ‘for a long and indeterminate time but not necessarily forever’ and ‘more likely than not to persist in the foreseeable future’.

Can the worker return to suitable employment?

To determine suitable employment that a worker is capable of performing despite the disability, the claims agent must consider:

• what physical capabilities the worker has retained to carry out work (consider the nature of the worker’s capacity, pre-injury employment and details in available medical information)

• what the physical and vocational attributes of a particular job are

• whether the job is available in the labour market ie, does it exist

• whether the worker’s residual capacities are enough to do a particular job (consider the worker’s pre-injury employment, age, education, skills and work experience)

• where the worker lives

• the worker’s return to work plan

• any occupational rehabilitation services that are being provided.

The availability of the suitable employment to the worker is not relevant in determining whether or not the worker is capable of doing the work, but the work must be available in the labour market.



Process for review

If the worker is currently receiving payments under section 35A and they are either approaching the end of the third entitlement period or have passed the end of the third entitlement period, the claims agent can make an assessment of the worker’s work capacity.

As notice to a worker that an assessment is to be made is not required, the worker should be advised of the assessment process during the management of the claim. It may be appropriate to discuss the process with the worker at the time of acceptance of liability.

If, on assessment, the claims agent determines that the worker does not have a current work capacity and that it is likely to continue indefinitely, weekly payments continue under section 35B(1) at the rate of 80% of the worker’s notional weekly earnings as though the third entitlement period was continuing. A letter is sent to the worker and, if appropriate, to the employer to advise of the decision.

A review of this assessment (ie, worker’s work capacity and entitlement to weekly payments) can be conducted by the claims agent at any time but must be conducted at least once every two years – refer to section 35B(3).

If, on assessment, the claims agent determines that the worker does not meet the requirements for continuation of payments, then the worker must be given notice that weekly payments of compensation will cease:

• if the worker has been receiving weekly payments of compensation immediately before the end of the third entitlement period under 35A(3) (ie, on the basis of no work capacity) then the claims agent must give the worker 13 weeks notice that weekly payments will cease

• For other cases, the claims agent must give the worker 28 days notice pursuant to section 36(3b)(b).

If the worker disagrees with the decision, they may apply to have that decision reviewed by the Workers Compensation Tribunal or, if they are in employment, make an application under section 35C(1) for a determination that weekly payments do not cease.



Application for continuation of payments after expiry of the third entitlement period – section 35C

If a worker has been receiving payments under sections 35A(3)(b), 35B or under section 35(1)(b) (old provisions) and is in employment they may apply under section 35C(1) for a determination that weekly payments of compensation continue.

The claims agent must record the date the worker’s application is received and then has 90 days to either make or refuse to make a determination under section 35C(2).

The claims agent may determine that the worker’s entitlement to weekly payments does not cease if it is satisfied that the worker is in suitable employment and working to their full capacity and is incapable of undertaking further or additional work which would increase their current weekly earnings. In that case, the worker is entitled to continue receiving weekly payments equal to 80% of the difference between the worker’s notional weekly earnings and the worker’s current weekly earnings. A letter must be sent to the worker and, if appropriate, to the employer to advise them of the decision.

A review of this assessment (ie, worker’s work capacity and entitlement to weekly payments) can be conducted by the claims agent at any time but must be conducted at least every two years pursuant to section 35B(3).

Alternatively, a refusal to make a determination cannot be made if the matter has not been referred to Medical Panels SA. The medical question referred to the medical panel for determination is

• whether, because of the disability, the worker is, and is likely to continue indefinitely to be, incapable of undertaking further or additional employment or work

and if not so incapable,

• what further or additional employment or work the worker is capable of undertaking.

There are two possible outcomes from the medical panel referral:

1. The panel is of the opinion that the worker is likely to continue indefinitely to be incapable of undertaking further or additional employment or work and, therefore, the worker will be entitled to weekly payments equal to 80% of the difference between their notional weekly earnings and their current weekly earnings;

2. The panel is of the opinion that the worker is capable of further or additional employment or work or, if they are not, that the worker is not likely to continue indefinitely to be incapable of undertaking further or additional employment or work and, therefore, the worker is not entitled to weekly payments so they can be discontinued or, if already discontinued pursuant to section 35B(9), the weekly payments do not need to be re-instated.

There is no right of review against the medical panel’s opinion/decision (except on the ground of a breach of natural justice) so all parties are bound by that opinion.



35C Application – Worker not in employment

A worker who has been assessed pursuant to section 35B as having a current work capacity can make an application pursuant to section 35C(1) to the claims agent for a determination that the worker’s entitlement to weekly payments does not cease at the end of the third entitlement period or at the expiry of an entitlement under section 35B. However, the claims agent cannot determine that the worker’s entitlement to weekly payments does not cease where the worker is not in employment.

The making of a determination contemplated by section 35C(2) is conditioned by two matters. Firstly, that the worker is in employment and secondly, that because of the compensable disability the worker is, and is likely to continue indefinitely to be, incapable of undertaking further or additional employment or work that would increase their current weekly earnings.

Where the worker is not in employment at the time the application is made, the claims agent has no option than to dismiss the worker’s application.

Leave entitlements and effect of an allowance or benefit on weekly payments Section 35(3) states that weekly payments to a worker during a period of incapacity are unaffected (unless WorkCover determines otherwise) by any payment, allowance or benefit paid to the worker by the employer.

Section 35(4) states that no reduction can be made under section 35(3) on account of a payment, allowance or benefit paid by the employer in relation to:

• annual or other leave

• retirement

• superannuation or pension scheme

• retrenchment or redundancy.

Section 40 deals with leave entitlements. Section 40(1) states that a worker’s weekly payments during a period of incapacity are unaffected by any payment, allowance or benefit for annual leave or long service leave to which the worker is entitled in respect of that period.

Period of incapacity counted as period of service

Section 40(2) states that any period of absence from employment by the worker as a consequence of a compensable disability will be included as a period of service for the purpose of annual leave or sick leave.

Total incapacity greater than 52 weeks

Under section 40(3) the worker’s entitlement to annual leave ceases if the worker has received weekly payments for total incapacity over a period of 52 weeks or more. The 52 week period of total incapacity can be continuous or cumulative (refer to examples below).

Where the entitlement to annual leave ceases the employer is still obliged to pay the worker annual leave loading. The liability for this payment is the employer’s, not the claims agent’s.

Where the worker returns to work within the 52 week period or if the worker’s employment is terminated within the 52 week period, the employer is obliged to grant pro-rata leave entitlements to the worker.



Any leave accrued prior to the injury is unaffected. Where a worker is receiving weekly payments during a period of incapacity, the employer can determine whether or not to grant annual leave to the injured worker.

Examples of annual leave entitlements

In the following examples the worker commenced work with the employer on 01/01/2003 and annual leave entitlements accrue at 1.67 days per month.

Example Date of injury

Date of return to work

Period of incapacity

Employment period

Total days of accrued annual leave

Example A 01/06/2003 01/10/2003 4 months 9 months 15 days

Example B 01/06/2003 01/02/2004 8 months 13 months 21.67 days

In examples A and B the worker was not in receipt of weekly payments for total incapacity for work for a period of 52 weeks or more, therefore the annual leave entitlements continued to accrue while the worker was absent from work.

Example Date of injury

Date of return to work

Period of incapacity

Employment period


Example C 01/06/2003 01/07/2004 13 months 5 months 8.35 days

Example D 01/06/2003 01/08/2005 26 months 5 months 8.35 days

In examples C and D the worker was in receipt of weekly payments for total incapacity for periods of 52 weeks or more. The worker’s annual leave entitlements were deemed to have been satisfied for the period of incapacity. However, the worker is still eligible for the annual leave entitlements which accrued in the five months prior to the injury.

Example E shows entitlements where the period of total incapacity is an accumulated period of 52 weeks or more:

Example E Period of incapacity Total employment period


1st period of incapacity

01/06/2003 to 01/10/2003

4 months

01/01/2003 to 01/10/2003

9 months

15 days

2nd period of incapacity

01/02/2004 to

01/05/2004

01/01/2003 to

01/05/2004

26.72 days



3 months 16 months

3rd period of incapacity

01/06/2004 to 01/12/2004

6 months

01/01/2003 to 01/12/2004

23 months

16.7 days

Total 13 months 23 months 16.7 days

In example E the worker is in receipt of weekly payments for total incapacity for work for an accumulated period of 52 weeks or more. The worker’s annual leave entitlements are therefore deemed to have been satisfied under section 40(3). The 16.7 days which are the worker’s entitlement are based on 10 months accrued leave, the 23 months employment period minus the 13 months the worker was totally incapacitated.

Leave entitlements under other legislation

Section 40(5) states that if under the law of another state or territory a worker’s absence from employment due to a compensable disability is not taken into account as service for the purpose of calculating annual leave (or payments in lieu) compensation must be paid by the claims agent which reflects the monetary value of the annual leave that would have accrued if the worker had not been absent from employment.

The compensation that is payable under this section must be paid when the worker’s annual leave would have been due if the worker had not been absent from employment.

Public holidays, rostered days off

Section 40 makes no reference to public holidays, rostered days off, stand-down days, etc This is because these types of leave are taken into consideration and included as part of the worker’s average weekly earnings. Therefore, once weekly payments are made to a worker they cannot be reduced because of public holidays etc.



Taxation on direct weekly payments (including top-up payments)

WorkCover assumes the role of the ‘payer’ for tax purposes when payments of income maintenance are made directly to workers (this includes direct payments on interim and provisional liability claims as well as any top-up payments to workers). It is therefore essential to handle tax instalment deductions in accordance with the requirements of the Australian Taxation Office (ATO). Information on these requirements can be found on the ATO's website http://www.ato.gov.au (eg, PAYG instalment essentials).

Tax file declaration

The level of taxation paid by the worker is determined by the details provided in their tax file number (TFN) declaration or the absence of a declaration. Therefore, as soon as direct payments are approved by the claims agent, the worker must be advised that unless they supply an effective TFN declaration form with their TFN within 14 days they will be taxed at the top marginal rate. The top marginal tax includes the Medicare levy.

The claims agent is to use the relevant standard letter, which advises the worker of the 14 days to forward the declaration and the tax implications if the declaration is not forwarded.

Note:

• IDEAS will calculate the tax on direct income maintenance payments based on the tax file declaration details keyed into the system.

• A TFN ceases to be effective if there is a gap of more than 12 months between income maintenance payments. In this instance the existing TFN details should be deleted from IDEAS and the claims agent should request a new TFN declaration from the worker if direct payments of income maintenance are to recommence.

Effective tax file number (TFN) declaration

To be an effective TFN declaration, the declaration must be on the approved TFN declaration form and it must:

• be made in writing and contain the information that the form requires (TFN notifications received over the phone and not provided in writing on the TFN declaration form are not effective declarations)

• contain a signed declaration

and

• the claims agent must forward the original copy of the declaration to the ATO within 14 days of the claims agent receiving it.

There is some flexibility as the ATO legislation allows the worker to print ‘X’ in the relevant box in question 1 of their TFN declaration, provided they have applied for a TFN but have not received it. Where a worker provides a TFN declaration with the ‘X’ in the relevant TFN box, the worker has 28 days after the TFN declaration was signed to provide their TFN number. After that period, the worker is to be taxed at the top marginal rate of tax (refer 28 day rule on the following page).



It is essential that the claims agent accurately enters the details from the TFN declaration onto the IDEAS system.

Tax liability can only be reduced when the appropriate details have been shown on the TFN declaration form.

These include:

• TFN (without the TFN, tax will be deducted at the top marginal rate)

• tax-free threshold/exemption claimed (without this, tax will be applied to all income without the initial tax free amount)

• dependent rebates that reduce taxation deductions. These should only be applied where the direct payee has specifically claimed such rebates. The mere fact that a person is married with children does not, in itself, entitle the worker to a dependent tax rebate.

Tax calculated on payments cannot be reimbursed if the calculation was based on the absence of the TFN after the allowed period. However, if the calculation was based on a clerical error, the claims agent should be adjusting the tax in the next payment run. A worker should not have to wait under the end of the tax year due to a clerical error.

The worker cannot authorise a lower rate of tax but may authorise a higher rate of tax by completing a Withhold declaration – upwards variation. Refer to the ATO’s website for further information. This adjustment must be applied manually in IDEAS.

14 day rule for worker to provide completed TFN declaration

When a claim is approved for direct payments, the claims agent will notify the worker

• that their claim has been approved for direct payments and

• that they need to provide a completed TFN declaration form within 14 days as failure to do so will result in their direct payments being taxed at the highest rate.

Section 117 of the Workers Rehabilitation and Compensation Act 1986 (the Act), deems service of documents to have been effected two business days after the date of posting, so the worker’s tax will be at their standard rate of tax for 14 days plus two business days from date the claims agent posts the notification letter to the worker. After that period, the worker will be taxed at the top marginal rate of tax.

For exceptions to the 14 day rule, refer to the 28 day rule.

28 day rule for worker to provide completed TFN declaration

When the worker provides their TFN declaration form to the claims agent and indicates on question 1 on the form that they have made an application for a new TFN or their existing TFN (ie, they cannot find their TFN) then the worker has 28 days from the date they make that declaration to give you their TFN. During the 28 day period, the claims agent will withhold the worker’s tax at their standard rate of tax. After 28 days, if the TFN has not been provided, the worker will be taxed at the top marginal rate of tax.



What if a worker does not provide a completed TFN declaration

If the worker receiving direct payments of income maintenance does not provide a completed TFN declaration within the time required by the above 14 day rule, or where applicable the above 28 day rule, then the claims agent must notify the ATO within 14 days.

To notify the ATO, the claims agent completes a Tax file number declaration by:

• completing questions 1 to 7 of section A to include as much information as known

• printing the word ‘PAYER”’ in the signature box of section A

• completing section B

• sending the original copy of the TFN declaration form that the claims agent has completed to the ATO within 14 days

• retaining the payer’s copy for their records in locked storage separate from the claim file, and

• withholding an amount at the top marginal rate of tax from any payments to the worker.

If the TFN declaration is completed by the agent for ATO purposes it is not to be keyed into IDEAS as the data will reduce the tax calculated.

TFN declarations forms to the ATO

The original TFN declaration form received from the worker must be forwarded to the ATO within 14 days of the claims agent receiving the form and the claims agent should then file the payer's copy in locked storage separate from the claims file. It is important that no worker’s TFN details appear on claim files.

As with the Act, ATO legislation has specific provisions regarding confidentiality and privacy. (Refer to section 112 and to chapter 14). Penalties apply if breaches of these provisions occur.

Top-up payments

In the case of top-up, the worker should be advised when the TFN declaration is requested that the tax free threshold can only be claimed from one payer ie, it cannot be claimed from both the employer and claims agent/WorkCover. To do so is in contravention of ATO legislation and will result in tax being underpaid at the end of the financial year.

Generally, the tax-free threshold is claimed from the payer that pays the worker the highest income during the financial year. However, the worker has the ability to submit a new TFN declaration at anytime due to a change in circumstances (eg, the direct payments received from WorkCover are higher than the payments from the employer).

The worker cannot authorise a lower rate of tax but may authorise a higher rate of tax by completing a Withhold declaration – upwards variation (refer to the ATO’s website for further information). If the worker is receiving top-up payments and the tax on the top-up payment calculates as nil, the worker may want to elect to have tax deducted to allow for other income.

If the worker lodges a TFN declaration with their TFN and does not claim the tax-free threshold, it does not mean that the worker will be taxed at the highest marginal tax rate. It means that the worker will be taxed at



the standard rate but with tax being applied from the first dollar rather than from after the tax-free threshold. This is considerably less than being taxed at the highest marginal tax rate. If the top-up payment reaches a certain level, the worker may incur a tax debt.

When the direct payment is a top-up payment, both the employer and the claims agent are making payments to the worker. In this case, for taxation purposes, the worker has two payers. To comply with ATO legislation, the claims agent must base the worker's tax on the gross amount of the top-up payment (paid by the claims agent) and the information supplied by the worker in their TFN declaration. So, when determining the relevant tax rate, the claims agent should ignore any tax paid by the worker’s employer(s) for that period.

Please refer to ATO publication NAT3092 at the ATO website for full information

IDEAS flag

As allowed by the ATO, the facility exists on IDEAS to flag that the worker has lodged an application for a TFN (ie, the worker has made an application to the ATO for a new TFN or the worker has requested advice of their existing TFN because it cannot be located). This allows the worker to be taxed at their standard rate of tax for a period of 28 days before defaulting to the top marginal rate.

Note: Use this flag only where the 28 day rule applies (refer to the above 28 day rule). It is anticipated that this situation would be rare and should not be confused with the situation where the worker has an existing TFN and has stated their intention to provide it for income maintenance purposes. In this case, the time limit is 14 days (refer to the above 14 day rule).

If the worker has not provided the TFN declaration, in all cases, the flag saying “is the worker a resident of Australia?” should be ticked “yes”. (If this flag has not been ticked, the Medicare levy component will not be included in the taxation amount.) Once a TFN declaration form has been provided, the relevant details on IDEAS must be updated.

Calculation of tax deduction

Dependent rebates that reduce taxation payable should only be applied where the worker has specifically claimed such rebates on their TFN declaration. The mere fact that a worker is married and has children does not, in itself, entitle them to a tax rebate. A reduction in tax payable can only occur when the appropriate details have been shown on the TFN declaration form.

Taxation on backpay and interest

Taxation on section 47 interest paid on arrears of weekly payments:

All interest relating to back payments owed to the worker has to be taxed. The process for dealing with this is described in greater detail below.



Tax application principle for backpay and interest

Note: Tax is based on the total amount (ie, the backpay plus interest) payable to the worker prior to any deductions being applied to pay third parties for debts and other legal obligations – such as payments to Centrelink and the Child Support Agency (CSA).

Amounts accrued in the current financial year

No previous direct weekly payments paid by claims agent to the worker:

1. To calculate tax on the total amount (T + I) of the backpay (T) plus interest (I) for the full period:

• Divide this total amount by the number of payment periods that make up the backpay owing to derive a single payment (A)

• Calculate the amount of tax on this single payment (A) by using current tax scales to produce a tax amount (C)

• Multiply the tax amount (C) by the number of pay periods that make up the backpay owing to give the tax amount (X) owing on this total amount (T + I).

2. To calculate tax on the total backpay (T):

• Divide the total backpay (T) by the number of payment periods that make up the backpay owing to derive a single payment (E)

• Calculate the amount of tax on the single payment (E) using current tax tables to produce an amount (F)

• Multiply the tax amount (F) by the number of payment periods that make up the backpay to calculate the tax amount (Y) owing on the backpay.

3. To calculate tax on the interest (I):

• The tax on the interest (I) is calculated by deducting the tax (Y) on the total amount of backpay from the tax (X) on the total amount of backpay plus interest to give the total amount of tax (Z) owing on the interest

Key the total amount of backpay [(T) above] into IDEAS, for the full back period, using the BKPY payment option and key the calculated tax amount [(Y) above].

On a new invoice key the full interest (I) for the same relevant period using the INTR payment option and key the calculated tax amount for the interest [(Z) above].

Any deductions payable - eg, to Centrelink or the CSA - are to be keyed into the deduction agency section of the relevant invoice and deducted from the net amount (deductions are not deducted from the gross amount).



Example of backpay and interest in current financial year

Period of backpay owing 2/10/2XXX to 31/12/2XXX (being 13 weekly pays)

Backpay amount owing to worker for the full period $10,400.00

Interest owing on backpay for the full period $222.83

Deductions payable to Centrelink for the full period $2,000.00

Tax calculation for the two components.

Firstly, calculate the total tax payable on the total of the backpay and interest for full period

Work out the total payable on backpay + interest (ie, $10,400 + $222.83) = $10,622.83

Divide this amount by the 13 pay periods gives $817.14

Work out the weekly tax on this $817 $138.00

Work out tax for full period – ie, multiply $138 by 13 $1,794.00

Secondly, calculate tax payable on just the backpay

Work out total payable on backpay (ie, $10,400) $10,400.00

Divide this amount by the 13 pay periods gives $800.00

Work out the weekly tax on this $800 $133.00

Work out tax for full period – ie, multiply $133 by 13 $1,729.00

Thirdly, calculate the tax payable on interest component = $1,794.00 - $1729.00 = $65.00

Payment processing

First Invoice

Gross backpay $10,400.00

Tax $1,729.00

Centrelink deduction $2,000.00

Net to worker $6,671.00

Second invoice

Gross interest $222.83

Tax on interest $65.00

Net to worker $157.83



Previous direct weekly payments paid by the claims agent to the worker


• Divide the total amount (T + I) by the number of pay periods that make up the backpay owing to derive a single payment (A)

• This single payment (A) is added to the worker’s prior normal pay (N) in the current pay period (entitlement before the backpay adjustment) for a single pay period to produce a total amount (A + N = B)

• In the case of workers in receipt of ‘top-up’ payments the last ‘top-up’ payment is used as the workers normal pay (N) regardless of earlier fluctuations. The employer component is not taken into the calculation

• Tax is calculated on this total amount (B) using current tax tables to produce an amount (C)

• The tax already paid (P) on the worker’s prior normal payment (before the backpay plus interest adjustment) is subtracted from the tax (C) calculated on the total amount to produce an amount (D = C – P)

• The result (D) is multiplied by the number of pay periods that make up the backpay to produce the amount of tax (X) owing on the total backpay and interest.

2. To calculate tax on only the total amount of backpay (T):

• Divide this total backpay (T) by the number of pay periods that make up the backpay to derive a single payment (E), regardless of the period of the backpay

• This single payment (E) is added to the worker’s prior normal payment (N) in the current pay period (entitlement before the backpay adjustment) for a single pay period to produce a total amount (E + N = F)

• As above in the case of workers in receipt of ‘top-up’ payments the last ‘top-up’ payment is used as the workers normal pay (N) regardless of earlier fluctuations. The employer component is not taken into the calculation

• Tax is calculated on this total amount (F) using current tax tables to produce an amount (G)

• The tax already paid (P) on the worker’s normal payment (before the backpay plus interest adjustment) is subtracted from the tax (G) calculated on the total amount to produce an amount H = (G – P). The result is multiplied by the number of pay periods that make up the backpay to calculate amount of tax (Y) owing on the backpay





Amounts accrued in previous financial years

The overriding principle to be applied here is, regardless of over how many years the amount accrued, taxation on that amount is calculated as if it accrued in one year.

No previous direct weekly payments paid to worker by claims agent


• Divide the total amount (T + I) by the number of payment periods in a 12-month period regardless of the period of the backpay eg, divided by 52 weeks or 26 fortnights etc to derive a single pay period payment (A)

The arrears may only cover a fraction of the previous financial year or may span multiple previous financial years

• The tax is calculated on the single payment (A) using current tax tables to produce an amount (C)

• The tax amount (C) is then multiplied by the number of pay periods in 12 months (eg, 52 weekly or 26 fortnightly payments) to calculate the tax amount owing on the backpay plus interest (X)

2. To calculate tax on the total amount of backpay (T):

• The total backpay amount (T) is divided by the number of payment periods in a 12-month period regardless of the period of the backpay ie, divided by the number of pay periods (52 weeks or 26 fortnights etc dependant on how the worker has been paid) to derive a single pay period payment (E)

• The tax is calculated on the single payment (E) using current tax tables to produce an amount (F)

• The tax amount (F) is then multiplied by the number of pay periods in 12 months (eg, 52 weekly or 26 fortnightly payments) to calculate the tax amount owing on the backpay (Y).





Previous direct weekly payments paid to worker by claims agent

1. To calculate tax on the total (T + I) of the backpay (T) plus interest (I) for the full period:

• Divide the total amount (T + I) by the number of payment periods in a 12-month period (ie, 52 weekly or 26 fortnightly payments etc ) to derive a single payment (A), regardless of the period of the backpay

• This single payment (A) is added to the worker’s normal pay (N) in the current pay period (entitlement before the backpay adjustment) for a single pay period to produce a total amount (A + N = B)

• In the case of workers in receipt of ‘top-up’ payments the last ‘top-up’ payment is used as the workers normal pay (N) regardless of earlier fluctuations. The employer component is not taken into the calculation

• Tax is calculated on this total amount (B) using current tax tables to produce an amount (C)

• The tax already paid (P) on the worker’s normal payment (before the backpay plus interest adjustment) is subtracted from the tax (C) calculated on the total amount to produce an amount (D = C – P)

• The result D is multiplied by the number of pay periods in 12 months to calculate the amount of tax (X) owing on the total backpay and interest.

2. Calculate tax on only the total amount of backpay (T):

• Divide this total backpay (T) by the number of payment periods in a 12 month period (eg, 52 weekly or 26 fortnightly payments etc) to derive a single payment (E), regardless of the period of the backpay

• This single payment (E) is added to the worker’s normal payment (N) in the current pay period (entitlement before the backpay adjustment) for a single pay period to produce a total amount (E + N = F)

• As above in the case of workers in receipt of ‘top-up’ payments the last ‘top-up’ payment is used as the workers normal pay (N) regardless of earlier fluctuations. The employer component is not taken into the calculation

• Tax is calculated on this total amount (F) using current tax tables to produce an amount (G)

• The tax already paid (P)on the worker’s normal payment (before the backpay plus interest adjustment) is subtracted from the tax (G) calculated on the total amount to produce an amount (H = G – P) and the result is multiplied by the number of pay periods in 12 months to calculate amount of tax (Y) owing on the backpay





ATO guidelines also state: ‘For any year in which any lump sum payment in arrears is made (lump sum box E on the payment summary), you must provide the payee with a letter, detailing the financial years over which the amount accrued, and the gross amount accrued in each of those years.’

When finalising back pay payments, the claims agent must provide to the worker or their representative documents that demonstrate how both the worker’s back pay and the tax payable were calculated. The standard letter advising the worker of their entitlement to back pay must include a reference to the chapter in the Injury Case Management Manual, where information about back pay and the tax payable can be located.

IDEAS, backpay and interest payment processing

When processing the back payment on IDEAS the separately calculated gross and tax amount for the backpay and the interest and tax amount on the interest amount if accrued in the current and past financial years must each be paid separately, ie:

• Amounts of backpay and interest accrued in the current financial year are paid using payment items in IDEAS of ‘Backpay’ (BKPY)’ and ‘Interest’ (INTR) or ‘direct’ option in the system.

• Amounts of backpay and interest accrued in previous financial years are paid using the payment items ‘Backpay LSPA’ (BKPYL) and ‘Interest LSPA (INTRL) options in the system. Note: the exception is where the gross previous financial year backpay amount is less than $400 ie, $0 - $399. These amounts are to be paid as ‘backpay – BKPY.’

The reason for the separate payments is the ATO requirement that gross amounts of $400 and greater accrued in a previous financial year must be included in the Lump sum E section of the worker’s payment summary (previously group certificate.) For this reason the payment items above of ‘BKPYL’ and ‘INTRL’ were added to the payment options on IDEAS to allow the previous financial year payments to be correctly classified on the payment summary ie, a payment of either INTRL or BKPYL will place the amount into the Lump Sum E box and payments of BKPY and INTR will be placed in the Gross section of the payment summary.

Deduction authorities applied to income maintenance in IDEAS

General

Deduction agencies in IDEAS are used to deduct and pay third parties for debts and other legal obligations the Corporation must satisfy to meet notices served on it. Examples are:

• Centrelink notices where a worker may either have an overpayment or may have been receiving Centrelink payments while a claim is determined.

• Child Support Agency where the notice relates to child support payments



• Australian Tax Office Garnishees (a court order applied to wages to recover a debt) to recover a tax office debt (this is not tax applied to the workers income)

Deduction agency payments are always applied post tax ie, tax must always be applied to the workers gross payment prior to any order being satisfied. The deduction agency items are covered more fully below.

Child Support Agency (CSA) and Centrelink payments

The claims agent is required to comply with notices from the CSA and Centrelink in relation to maintenance owed by workers for child support and/or Centrelink debts or recovery of benefits. The process will most likely commence with the claims agent receiving a letter or notice of intent from one of these organisations asking if the relevant worker is being paid income maintenance. If the worker is receiving direct weekly payments then for taxation purposes, they are deemed to be an employee of the claims agent and the claims agent must reply to this letter. CSA or Centrelink will then send a letter saying how much has to be deducted and explaining relevant procedures.

CSA payments will usually be on-going, whereas Centrelink payments will usually be one-off payments.

If on-going, the deductions will continue until further notice from the relevant organisation unless the payment of weekly payments to the worker is suspended or discontinued. In this case the deduction should also cease. The claims agent should notify the CSA or Centrelink within five working days where weekly payments are suspended or discontinued, even though in the Child Support Agency’s case, there is no legal obligation to do so. Centrelink’s original notice would have required the Agent to notify any change to payments.

If a worker’s weekly payment is reduced under the Act, the CSA or Centrelink deduction must continue at the same rate until the relevant agency advises otherwise. The onus is on the worker to advise the CSA or Centrelink of a reduction in weekly payments, and seek a corresponding reduction in deductions.

Where suspended or discontinued payments are reinstated, the claims agent must notify the CSA or Centrelink by telephone within 5 working days. Both the CSA and Centrelink will issue directions, if appropriate, immediately upon receipt of such advice, and deductions should only recommence once written direction is received.

The claims agent should not be involved in child support matters with workers to whom the employer pays weekly payments direct. Should a claims agent receive notice from the CSA in relation to a worker who is not on direct weekly payments, the claims agent should return the notice to the CSA and advise who the correct employer is.

ATO garnishees

Care must be taken in processing garnishees received from the ATO. Payments made under these are not taxation payments to ATO and must be paid using the ‘ATO garnishee only’ deduction type option. This payment type should not be used as a taxation deduction as it is not included as tax on the workers payment summary (previously group certificate), only in the gross figures (being recovery of a debt for the ATO and not a tax deduction).



Payment summaries (previously called group certificates)

Payment summaries are sent by WorkCover’s Finance and Administration – Accounts Unit to the worker’s postal address, as recorded on the database, at the end of the financial year. The payment summary details the amount of weekly payments for the financial year as well as tax deductions.

Payments will be shown on the payment summary for the financial year in which the payment is made irrespective of the period of incapacity for which the payment is made. Where the worker receives payment in respect of a prior financial year, he or she may have rights for concessionary tax treatment but the payment will be shown in the current year’s payment summary.

In the event of errors, amended payment summaries can be issued if necessary. For further information the relevant Australian Taxation Office websites are

http://www.ato.gov.au

and:

http://www.ato.gov.au/businesses/content.asp?doc=/content/41716.htm&page=1&H1.

Reasonable costs reasonably incurred

This issue arises in relation to compensation costs other than weekly payments of income maintenance. For payment of medical and all other costs, refer to the section on reasonable costs reasonably incurred in chapter 11, Payments – medical and other expenses.

Date post:	12-Feb-2022
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Chapter 9: Payments â€“ entitlements

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