WORKERS REHABILITATION AND COMPENSATION (EMPLOYER PAYMENTS) AMENDMENT BILL

Introduction and First Reading

The Hon. G.E. GAGO (Minister for Agriculture, Food and Fisheries, Minister for Forests, Minister for Regional Development, Minister for Tourism, Minister for the Status of Women) (11:06): Obtained leave and introduced a bill for an act to amend the Workers Rehabilitation and Compensation Act 1986; and to make consequential amendments to the Occupational Health, Safety and Welfare Act 1986, the Stamp Duties Act 1923 and the WorkCover Corporation Act 1994. Read a first time.

Second Reading

The Hon. G.E. GAGO (Minister for Agriculture, Food and Fisheries, Minister for Forests, Minister for Regional Development, Minister for Tourism, Minister for the Status of Women) (11:06): I move:

That this bill be now read a second time.

I seek leave to have the second reading explanation inserted in Hansard without my reading it.

Leave granted.

The purpose of this Bill is to enable a new approach to employer payments in the South Australian workers compensation Scheme.

As the House is aware, the WorkCover Scheme is funded by employers to provide fair compensation to injured workers and to support them to remain at work wherever possible or return to work or the community, at a reasonable cost to employers.

In 2008, on the basis of recommendations made by Australia's pre-eminent workers compensation experts in the Clayton Walsh Review, the Government implemented fundamental amendments to the Scheme aimed at addressing the poor return to work rates of injured workers in South Australia.

As noted in the independent review of the 2008 amendments conducted by Mr Bill Cossey in early 2011, there has been some trend towards improvement in return to work rates, however it is too early to evaluate the impact of the 2008 changes. The Government acknowledges there is still a way to go before the goals of the 2008 amendments are met.

The proposed new approach to employer payments will provide a financial incentive to employers to achieve the best possible work health and safety practices leading to fewer workplaces injuries.

Where workplace injuries do occur, the system will provide a financial incentive to employers to support injured workers to stay at work wherever possible or to achieve an early and safe return to work.

Improvements in injury prevention, management and return to work practices in the Scheme will result in better outcomes for workers as well as lower the cost of the Scheme.

Registered employers currently pay a levy based on their industry classification and the amount of remuneration paid to employees. The industry levy rate reflects the expected cost of claims for that industry. On average, the total amount collected from registered employers is about 2.75 per cent of the total remuneration paid to employees by registered employers. This is what is known as the average levy rate and is set by the WorkCover Board each year based on actuarial evaluations.

The allocation of how much each employer pays is currently dependent only on the industry they are in and how much they pay their employees. Improved performance of an industry as a whole is required before employers within that industry benefit from a reduced levy rate.

Clearly where the cost of a claim has only a small impact on the amount an employer pays, there is little incentive to reduce the claim costs by helping injured workers to recover and remain at work or return to work as soon as possible.

The new approach to employer payments has been carefully developed and the framework incorporated into this enabling legislation. The full detail of the new approach is not incorporated into the Bill because the system is best served by including the design framework in the Act, with supporting detail contained in the Regulations and various Gazetted documents, as is the case in the similar New South Wales, Victorian and Queensland schemes.

The Regulations and gazettal documents will be developed for consultation with stakeholders subject to the passage of the Amendment Bill through Parliament.

The new approach to employer payments can be summarised as incorporating:

a mandatory Experience Rating System for medium and large employers registered with the Scheme

an optional Retro-Paid Loss arrangement for large employers registered with the Scheme

no change to the way in which premiums are calculated for small employers registered with the Scheme

minimal change to private and Crown self-insured arrangements

changes to terminology, definitions and practices within the Scheme, aimed at achieving cultural change.

Both the Experience Rating System and the Retro-Paid Loss arrangements are forms of experience rating. Under an experience rating approach the amount an employer pays in premium is directly impacted by their own claims experience.

Experience rating aims to provide a financial incentive for employers to improve their claims experience through good work health and safety practices and injury and return to work management. The result is that if an employer has high claims costs it is likely that they will pay more in premium in comparison to similar sized employers operating in the same industry who have lower claims costs.

The premium calculation for the Experience Rating System is designed to take into consideration the employer's individual claims experience, as well as their size and the level of risk of their industry. A range of employer protections are built into the system to achieve a balance between 'insurance protection' with 'user-pays' principles.

The design of the new approach to employer payments has been based on similar systems in New South Wales, Victoria and Queensland, independent actuarial modelling of the appropriate scheme framework for the South Australian market and a comprehensive consultation process undertaken by WorkCover and the Government.

WorkCover in fact commenced a comprehensive consultation process on the new approach to employer payments in September 2010. Employers, employer associations and unions have been heavily involved in the design of the new approach and input has also been received from insurance companies and insurance brokers.

The Government believes that there is broad support across WorkCover's stakeholder base for the introduction of a new approach to employer payments in South Australia. The employer community looks forward to the opportunity to influence the amount of premium they pay and unions are fully cognisant of the potential benefits to workers when employers focus on reducing claims costs by assisting the recovery of injured workers and enabling them to remain at work or return to work as soon as possible.

Who will be experience rated?

The Experience Rating System has been designed to be fair and reflective of an employer's risk of a workplace injury, as indicated by the employer's claims experience, relative to their business activity and size.

Independent actuaries have modelled the new approach to determine the threshold at which point employers should be experience rated–this has been based on the likelihood of employers having a claim, relative to their size.

Small employers will be defined in regulation as those with a base premium of less than $20,000 or annual remuneration paid to their employees of less than $300,000 and they will continue to pay premium based on their remuneration and relevant industry premium rate.

All employers with base premium equal to or above $20,000 and annual remuneration equal to or above $300,000 will meet the threshold criteria for entry into the Experience Rating System.

Large employers will be defined as those employers with base premium of more than $500,000 and will be experience rated unless they apply for and are accepted into the separate Retro-Paid Loss arrangements.

The effect of these categories is that only approximately 10 per cent of registered employers will be above the threshold for entry into the Experience Rating System. While this percentage may seem insignificant, it is important to note that this same group are responsible for approximately 75 per cent of claims costs and 75 per cent of the levy currently paid by registered employers.

Approximately 90 per cent of employers will be categorised as small and these employers will continue to pay premium based on their remuneration and industry rate. This is because the likelihood that small employers will have a claim is so low – in fact employers who currently pay less than $20,000 in levy are likely to have one claim approximately every 13 years. Clearly it is difficult to differentiate between 'chance' and 'performance' in understanding claims experience of individual employers in this size category.

Although all employers have the ability to have an impact on the number and costs of their claims through workplace safety, injury, and claims management practices, the objective of the Experience Rating System is to influence employer behaviour so that their performance improves. Therefore it is important that the new system be limited to employers who are of sufficient size so that their individual claims experience is a credible indication of their work health, safety and injury management efforts.

What is Retro-Paid Loss?

Under the new employer payments approach, large employers (those with a base premium over $500,000) will also have the option of applying to enter into Retro-Paid Loss arrangements. Retro-Paid Loss is a form of experience rating that calculates the premium an employer pays in a manner that closely reflects the actual costs the employer has incurred. It has limited association with industry experience.

Employers within Retro-Paid Loss arrangements can experience significant reductions in the amount of premium that they pay if they have good claims experience. However, employers can experience a high premium if they don't manage their claim numbers and costs effectively. For this reason, Retro-Paid Loss arrangements are often referred to as 'burning cost'.

In this approach, the premium an employer pays is closely linked to their claims performance (that is, injury prevention and management practices), not only during the policy period but until the claim is closed, or for four years following the expiry date of the policy period, whichever comes first.

Because of the potential for significant volatility in premiums, Retro-Paid Loss arrangements will be optional and restricted to large employers with demonstrated capacity and resources to manage the inherent risks of the approach.

Key aspects of the new approach to employer payments

Terminology changes

Within the new approach to employer payments the amount employers pay will be referred to as their premium instead of 'levy'. This terminology is more appropriate for an Experience Rating System and reflects a general insurance concept that implies some degree of influence over how much is paid.

Additionally, the Act currently refers to a physical or mental injury as a disability. Changing the terminology used within the Act to injury will more accurately reflect the contemporary workers rehabilitation and compensation Scheme in which the majority (79 per cent in 2009-10) of injured workers either do not take time off work, or return to work within two weeks of an injury.

Claims estimates

A key part of the premium calculation within the new Experience Rating System is the inclusion of employer claims costs. An employer's experience will take into account actual paid costs and a manual estimate of the outstanding costs for the life of the claim. This will ensure that employers focus more on management of their claims with the aim of reducing the costs and this will directly benefit their injured workers.

Confirmation of registration

The current 'proof of registration' section of the Act is proposed to be replaced with a 'certificate of registration' – a hybrid model between the current proof of registration and the 'certificate of currency' similar to those issued in Victoria and Queensland. It will be used to prove registration to officers of industrial associations and will also need to be produced if requested by someone contracting with the employer to undertake work. This will support principal contractors by providing evidence that a sub-contractor is registered with WorkCover

Transfer of business

The transfer of claims experience with the transfer of business is an important element of experience rating. Without this transfer, the opportunity to 'game' the system by selling and establishing new businesses would be increased. Claims experience and remuneration will follow where a transfer of business occurs within the meaning of the Fair Work Act 2009.

Other legislative changes

Consequential changes to other Acts

This Amendment Bill also makes consequential amendments to other Acts. These changes are largely substituting the terms 'disability' and 'levy' for 'injury' and 'premium' but also deal with references to the Occupational Health and Safety fee collected by WorkCover on behalf of SafeWork SA.

Excess waiver

This Bill proposes that employers who meet their notification and claim lodgement requirements under the Act within five calendar days of a worker reporting an injury will be exempt from paying the first two weeks of income maintenance for that worker. This is an increase from two business days and was based on employer feedback that circumstances can make it difficult for employers, even with the best intentions, to provide notification of an injury to the claims agent within the two day window.

By expanding the opportunity to be eligible for the excess waiver, those employers who previously missed the two day window and then had no incentive to lodge the claim quickly will focus on always meeting the five day window. This is critical because early notification of an injury can significantly improve claims management outcomes.

Penalties, fines and supplementary payments

Employers have a range of premium related obligations under the Act. The objective of fines and supplementary payments is to influence employer behaviour and ensure that employer obligations are met.

It is important to acknowledge that for employers who are experience rated or participating in retro-paid loss arrangements, the incidence and cost of claims will directly impact the amount of premium they pay. For this reason, WorkCover will not use the incidence and cost of claims to determine supplementary payments for these employers. An alternative approach will be established by WorkCover in consultation with employer associations and unions.

In addition to existing fines and supplementary payments within the Act a fine has been introduced in the Bill for employers failing to register. Employers may be required to pay both the appropriate premium and an additional fine of up to three times the amount of premium.

WorkCover will implement a program of education for employers on their obligations and support them to achieve effective work health safety and injury management outcomes. A 12 month moratorium will apply to imposition of fines by WorkCover.

Contributory negligence and WorkCover recoveries from third parties

The workers compensation scheme in South Australia is a no fault system that protects employers from common law liability arising from work-related injuries.

Workers can however pursue their common law right to sue a third party or parties whose negligence has caused or contributed to their injury. Where an injured worker brings an action against a negligent third party, the negligent third party can reduce its liability if it can establish that the worker's own negligence caused or contributed to the worker's injury.

WorkCover can bring its own action under the Act against the negligent third party to recover compensation paid and payable to the injured worker.

This Bill removes any doubt that WorkCover recovery actions are limited by a worker's contributory negligence.

This change will not impact on the level of compensation provided to injured workers.

Conclusion

In closing, WorkCover's current levy system offers little incentive for employers to focus on work health, safety and claim outcomes. Changes are required to the current arrangements to influence employer behaviour by rewarding good performers and penalising poor performers.

A system that responds to an individual employer's risk and experience is the most effective lever WorkCover can use to influence employer behaviour and improve outcomes for injured workers, employers and the South Australian community. Providing this incentive will increase the likelihood of improvements in return to work rates, reductions in the incidence of workplace injuries and ultimately contribute to reductions in the overall cost of the Scheme.

The new approach to employer payments as set out in this Amendment Bill is such a system.

The Government commends the Bill to Members.

Explanation of Clauses

Part 1—Preliminary

1—Short title

This clause is formal.

2—Commencement

The measure will be brought into operation by proclamation.

3—Amendment provisions

This clause is formal.

Part 2—Amendment of Workers Rehabilitation and Compensation Act 1986

4—Amendment of section 3—Interpretation

A number of these amendments relate to a proposal to refer to 'injuries' under the Act rather than 'disabilities'.

Another amendment will continue the ability of the Corporation, if it so determines, to regard 2 or more workplaces in close proximity to each other to be regarded as a single workplace (see section 65(2) of the current Act).

Another amendment will allow the Corporation to designate various forms for the purposes of the Act (rather than the Minister). It will also be possible for the Corporation to specify a form that is different to a written or printed form.

5—Amendment of section 45A—Compensation payable on death—lump sums

This clause will allow the Corporation to pay compensation where a deceased worker only leaves a partially dependent partner or partners.

6—Amendment of section 46—Incidence of liability

The relevant period for the purposes of section 46(8b) of the Act is to be altered from 2 business days to 5 days.

7—Amendment of section 54—Limitation of employer's liability

A right of recovery under section 54(7) of the Act will now also be subject to the express requirement that the amount to be recovered from the wrongdoer must be adjusted to take into account any contributory negligence on the part of the worker.

8—Amendment of section 62—Applications and changes in details for registration

This amendment will include an express requirement under the Act for an employer to provide appropriate information to the Corporation if there is a change in various details or information relating to the registration of the employer.

9—Amendment of section 64—Compensation Fund

This is a consequential amendment.

10—Substitution of Part 5 Divisions 4 to 7 (inclusive)

The new sections to be enacted under this clause will provide a new scheme for the calculation and collection of premiums, payments and fees by employers under the Act.

New section 65 continues the operation of section 65(1) of the Act as it currently stands.

New section 66 will enable the Corporation to establish a set of terms and conditions that will apply to employers in relation to the calculation, imposition and payment of premiums under the Act. These provisions will be referred to as 'WorkCover premium provisions'. Different sets of provisions will be able to be set in relation to different categories of employers. These provisions will underpin the new arrangements for the purposes of premiums under the Act.

New section 67 will establish the requirement for employers to pay premiums under the Act (rather than levies as currently provided by section 66(1) of the Act). An employer who is a self-insured employer, exempt from the requirement to be registered, or exempt under the regulations, will not be required to pay a premium under this Division. A new provision will allow the Corporation to impose on an employer who is in default of the requirement to be registered under the Act a fine not exceeding 3 times the amount of premium that would have been payable under the Act had the employer been registered.

New section 68 will allow the regulations to divide employers into various categories for the purposes of these new arrangements (subject to the ability of the Corporation to assign a particular employer to a different category if it considers that it is appropriate to do so after applying any criteria or factors prescribed by the regulations).

New section 69 will continue the scheme that allows the Corporation to divide the industries carried on in the State into various categories (see section 66 of the Act as it currently stands).

New section 70 will facilitate the setting of a rate (an 'industry premium rate') that is to be applied in relation to each class of industry (compare section 66(6) of the Act as it currently stands).

The new scheme will be based on orders ('WorkCover premium orders') published by the Corporation by notice in the Gazette under new section 71 (and to the extent that such an order does not apply then an employer will pay premiums according to the base premium determined under section 70). A WorkCover premium order may—

(a) apply any principle relevant to the claims experience of a particular category or class of employer, or the size of an employer (after applying such principles or assumptions as the Corporation thinks fit); and

(b) fix and apply various principles, weights, adjustments, caps, assumptions or exclusions according to specified factors; and

(c) without limiting any other provision, specify any adjustment or assumption relating to the remuneration paid to workers over a particular period (including a period into the future); and

(d) allow employers who satisfy any specified criteria, on application and at the discretion of the Corporation, to pay a premium determined by the Corporation according to an alternative set of principles—

(i) specified in the order; or

(ii) specified in another WorkCover premium order that applies in the circumstances; or

(iii) agreed between the Corporation and the employer; and

(e) require that employers of a specified class must provide a deposit, bond or guarantee, or some other form of security, specified in the order; and

(f) make any other provision or impose any other requirement prescribed by the regulations.

New section 72 will establish various stages for the imposition and payment of premiums. These stages will be as follows (in relation to each relevant period for the payment of a premium):

(a) an initial premium calculated on the basis of estimates and assumptions made at, or in relation to, the beginning of the period after applying any principles specified by the Corporation in the WorkCover premium provisions or in a WorkCover premium order;

(b) an adjusted premium payable at any time during the period based on applying any principles or requirements specified by the Corporation in the WorkCover premium provisions or in a WorkCover premium order;

(c) a hindsight premium calculated on the basis of actual amounts and information known or determined by the Corporation at the end of the period after applying any principles or requirements specified by the Corporation in the WorkCover premium provisions or in a WorkCover premium order.

Each component will be payable by a date specified by the Corporation. The Corporation may agree that an initial premium or an adjusted premium will be paid by instalments. The Corporation will be able to grant discounts or other incentives in order to encourage the payment of a premium in advance.

New section 72A sets out a set of grouping provisions. A group will be determined in the same way as presently applies under section 65(3) of the Act as it currently stands. Where 2 or more employers constitute a group—

(a) unless the Corporation otherwise determines, each employer in the group will be liable to pay premiums in accordance with a WorkCover premium order (rather than on the basis of aggregate base premiums); and

(b) the Corporation may apply any claims experience, rating or other principle to all members of the group on a combined basis (rather than on an individual basis) in accordance with the provisions of a WorkCover premium order; and

(c) the Corporation may aggregate the employers in such manner (in any way or for such other purposes) as the Corporation thinks fit under a WorkCover premium order (including by treating 1 employer within the group as if the employer were the employer of all workers employed by the members of the group or by rating them together or according to a common factor).

In addition, the employers in a group will be jointly and severally liable for the payment of premiums attributable to the group.

New section 72B provides for a fee to be paid by self-insured employers (just as a levy is currently payable under section 68 of the Act). The fee will be fixed by the Corporation with a view to raising from self-insured employers—

(a) a fair contribution towards the administrative expenditure of the Corporation; and

(b) a fair contribution towards the cost of rehabilitation funding; and

(c) a fair contribution towards the costs of the system of dispute resolution established by the Act; and

(d) without limiting a preceding paragraph, a fair contribution towards the costs associated with the operation of Part 6C and Part 6D of the Act; and

(e) a fair contribution towards actual and prospective liabilities of the Corporation arising from the insolvency of employers.

Various elements of the current scheme for self-insured employers will also be preserved.

New section 72C will revise the principles relevant to the remission of a premium or fee otherwise payable by an employer or the imposition of supplementary payments. The new section will accordingly replace section 67 of the Act as it currently stands. However, a number of new principles are to be established, including the following:

(a) the matters that will be relevant for the purposes of the section, insofar as they relate to a particular employer, will be able to be applied to another employer who is linked to the original employer through a transfer of business;

(b) the specification of the various matter under the section is not intended to limit the Corporation's discretion as to other matters that may be considered relevant to the operation of the section.

New sections 72D to 72Q (inclusive) will set out various ancillary or related provisions associated with the operation of the new scheme for the calculation and payment of premiums and other relevant amounts. Many of these provisions are based on provisions appearing in the Act as it currently stands.

11—Amendment of section 73—Separate accounts

These are consequential amendments.

12—Substitution of section 76

This clause will enact a new provision that allows the Corporation to issue a certificate with respect to—

(a) the registration of an employer under the Act; and

(b) the compliance of an employer with any requirement to pay premiums under this Part.

13—Repeal of section 76A

The section to be deleted by this clause is to be enacted as new section 72O.

14—Amendment of section 112A—Employer information

It is to be made clear that the information that may be disclosed by the Corporation under this section extends to information about a former employer.

15—Amendment of section 120A—Evidence

This is a consequential amendment.

Schedule 1—Further amendments of Workers Rehabilitation and Compensation Act 1986

These are consequential amendments.

Schedule 2—Consequential amendments and transitional provisions

This schedule sets out consequential amendments to other Acts, and relevant transitional provisions.

Debate adjourned on motion of Hon. J.S.L. Dawkins.