WORKERS REHABILITATION AND COMPENSATION (EMPLOYER PAYMENTS) AMENDMENT BILL

Second Reading

Adjourned debate on second reading.

(Continued from 23 November 2011.)

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) (12:35): There being no further second reading contributions, I seek to make a few concluding remarks and also to put on the record some answers to questions posed during the second reading debate. I thank the Hon. Ann Bressington, the Hon. Tammy Franks and the Hon. Rob Lucas for their contribution to the second reading debate.

The only outstanding matters relate to the legislative structure rather than the substantive intent of the proposal. I am advised that there is broad support from employers and unions for this new approach to employer payments in the South Australian workers compensation scheme. The new approach responds to an individual employer's risk, experience and size. It is the most effective lever WorkCover can use to influence employer behaviour and improve outcomes for injured workers, employers and the South Australian community.

The Hon. Rob Lucas asked a number of questions about the Liberal Party not objecting to the general principle but commented on the bonus penalty scheme existing without it being specifically provided in legislation. I have been advised that legislative change is necessary for the new approach to premium calculation and for the associated changes aimed at achieving cultural change.

The existing provisions of part 5, divisions 4 to 7 of the Workers Rehabilitation and Compensation Act 1986 are being recast to establish the new approach to premium calculation. The amendments will also achieve a greater degree of openness and transparency than was the case with the bonus penalty scheme, which was governed by board and organisational policy. The act needs to be changed to enable the establishment of separate premium systems for different categories of employers.

The bill articulates the new principles under which premiums are to be calculated. The formulae and operational aspects of the new approach will be detailed in the regulations and gazetted documents, both of which will be consulted on with stakeholders following the successful passage of the bill.

The Hon. Rob Lucas also asked why the government and the WorkCover board got rid of the bonus penalty scheme. I am advised that the bonus penalty system was ceased by the WorkCover SA board, effective 30 June, 2010 due to flaws specific to its design that meant that it had minimal impact on influencing employer behaviour. Further, the system cost $45 million per year because it paid out more bonuses than penalties and this had a negative impact on the average levy rate.

The government acknowledged that many employers have expressed dissatisfaction with the removal of the bonus penalty scheme because the current system has minimal association with their actual performance and claims experience. The new approach to employer payments will address this. It specifically targets medium and large employers who account for around 75 per cent of the total number of claims costs and have greater capacity to manage their own claims experience.

The Hon. Rob Lucas requested that a response be provided to the number of requests for assurances made by the Ai Group. Before doing so, I would like to read into the record an extract from the letter of support for the bill by the Ai Group, sent to the Hon. Jack Snelling. It states:

...in regards to legislative reform 'doing nothing is not an option'. Although the proposed experience rating scheme is expected to impact only 9% of registered employers, we see it as an important means by which medium to large employers can begin to have some impact on determining the amount of premium that they will pay.

I understand that the Ai Group, like many employer associations, has been closely involved in the consultation on this new approach. It has been an advocate and supporter of the introduction of an experience rating system in the South Australian workers compensation scheme. The Ai Group has sought from the government, directly and via the Hon. Rob Lucas, a number of assurances and clarifications regarding the bill and the implementation of the provisions therein.

The Ai Group seeks assurances relating to both the quantum and the transitional gap and the period of time over which it will operate. While support for the new experience rating system has been overwhelming, the government acknowledges that some of the employers will see an increase in the amount of premium they pay. Similarly, some employers will see a decrease.

I confirm that transitional provisions, including the level of capping and the period over which the cap will apply, will be properly consulted on following the passage of the bill through parliament. I can also confirm that, consistent with the position paper released by WorkCover in July 2011, it is envisaged that the transition arrangements will apply for the first four years of the new approach and that any increase or decrease in the employer's premium rate will be capped at 125 per cent of the previous year's rate in the period 1 July 2012 to 30 June 2016, subject to any changes agreed to during the consultation process,

The Ai Group seeks formal clarification relating to penalties within the Workers Rehabilitation and Compensation Act being levied by a court rather than WorkCover Corporation. I can clarify that such penalties are not to be levied by the corporation and that justice and equity will be afforded as part of the formal court process.

The Ai Group has sought clarification regarding the use of the new provision at clause 67(4) of the bill, and that this be read into the record. The new provision at clause 67(4) of the bill will allow the corporation to impose a fine on an employer who is in default of the requirement to be registered under the act of up to three times the amount of premium that would have been payable under the act had the employer been registered. I confirm the intention that this provision will only be used by WorkCover in a way that is reasonable and proper, having regard to the interests of employers and workers, and would therefore only be exercised where warranted and not on an arbitrary basis.

The Hon. Rob Lucas asked several questions in relation to the premium adjustment provisions within clause 72. The first of these (to which I now respond) was: what assurances has the corporation given groups like Ai in relation to clause 72? I am advised that WorkCover assured the Ai Group that its intention is that any adjustment of the employer's premium pursuant to clause 72 will be made for reasons that are reasonable and proper. This assurance is consistent with the government's understanding of the intent of this provision.

A further question was: does the government agree that this is a new power that is being provided to the corporation, and what is the corporation's justification? I have been advised that the ability to adjust an employer's premium is absolutely necessary to account for instances where the employer's circumstances change part way through the year and they inform WorkCover of these changes. Examples of where this provision may be used include purchase of an additional location, change in business activity, or reduction in the number of workers employed. Any adjustment will be made in accordance with the relevant premium order, the detail of which is subject to consultation following passage of the bill.

The final question in regard to this provision was: if an amendment were to be moved along the lines that the Ai Group has suggested, what would be the government's response to such an amendment being moved to the legislation? In response to this I draw the honourable member's attention to the obligations already placed on WorkCover in regard to exercise of its discretionary powers. WorkCover is required to exercise any discretionary powers afforded in accordance with the primary objects of both the WorkCover Corporation Act and the Workers Rehabilitation and Compensation Act. This places an obligation on WorkCover to exercise discretionary powers in a way that is reasonable and proper, having regard to the interests of employers and workers.

Further, WorkCover is governed by a board, appointed by the Governor, and includes associations representing the interests of employers and workers. It is also subject to control and direction by the minister. Such an amendment is not necessary for the reasons outlined above. Having said that, the government would not oppose such an amendment.

The Ai Group has sought clarification in relation to grouping provisions. I confirm that it is the intention that WorkCover will only determine that two or more employers constitute a group if they are capable of being treated as a member of a group under the Payroll Tax Act 2009. The provision for determining whether two or more employers should be grouped is the same in the bill as it is in the act. Clause 72A(1) of the bill is the same as the current section 65(3) of the act.

Further, I confirm that WorkCover will group employers for the purpose of the experience rating system pursuant to clause 72A(1)(a); that is, if 'they are capable of being treated as members of the group under the Payroll Tax Act 2009'. The honourable member has also asked why the government has moved from the position outlined in the July 2011 position paper to now propose joint and several liability. In response it is correct that the July 2011 position paper did not specifically refer to joint and several liability. It was proposed that:

...the cost of claims and remuneration of a group member who closes or does not renew their policy may be proportionally allocated among remaining group members, in order to avoid premium avoidance.

During drafting of the bill, consideration was given to the most appropriate mechanism for minimising premium avoidance by employers. Consideration was also given to how this matter is dealt with by other jurisdictions. Both Victoria and New South Wales provide for joint and several liability. Given that grouped employers will tend to be larger employers, which often work in multiple jurisdictions, it was considered appropriate to incorporate the joint and several liability provision for the recovery of premium.

Further, an exhaustive amount of time has been spent grappling with this matter. It is the view of government that this provision, as it stands in the bill, is the most effective way forward if we are to be as fair as possible to all employers. For these reasons, the government would oppose any amendment.

The Ai Group has sought clarification regarding the use of the new statutory declaration provisions in new sections 72E and 72F. These new sections deal with the requirement for employers to provide information for the purposes of calculation or determination of a statutory payment. Both sections provide for WorkCover to require that information provided by the employer be verified by statutory declaration.

The Hon. Rob Lucas has asked whether an assurance can be given or an amendment made to require that statutory declarations only be required by the corporation for a proper reason. In response to this, I can confirm that the intention is that this requirement will only be made for a proper reason.

I am advised that the Motor Trade Association has also requested clarification regarding a provision in clause 72E(10), and I will take the opportunity to provide this. The current section 69(4)(a) provides for WorkCover, by notice to a particular employer or by notice in the Gazette, to specify an estimate of remuneration. This provision is replicated in the bill at clause 72E(3)(a).

The MTA has sought clarification regarding the type of notice that would be published in the Gazette. I can confirm that it is not the intention that estimates pertaining to individual employers be published. I am advised that, in the interest of transparency, it is WorkCover's intention to publish in the Gazette the approach used to estimate remuneration. Notices will be issued to individual employers if an estimate is specified for them. Therefore, given these assurances and the obligations already placed on WorkCover with regard to the exercise of its discretionary powers, the government does not believe an amendment, as referred to by the honourable member, is necessary.

I am advised that the Ai Group has received clarification from WorkCover about the continuation of existing avenues for review, like the current Levy Review Panel, for review of premiums on the application of an employer. I confirm that employers will continue to be able to request a review of their premium calculations as provided by clause 72M of the bill. The WorkCover Board currently delegates its power of review to the Levy Review Panel and no substantive change to this arrangement is proposed.

The Hon. Rob Lucas seeks a response to questions raised by the Housing Industry Association, to which I now respond. The first question relates to the amendment to section 3(13) of the act. The honourable member asks:

Can the minister outline to the house the reasons why the government has agreed to this particular issue and whether there is any concern of too much power being given to the corporation in this particular section?

In response to this, the proposed amendment provides for WorkCover, rather than the minister, to designate relevant forms in the government Gazette when it designates the manner of lodgement or provision of specific information required by WorkCover. This amendment has been made to streamline the form publication process.

Currently, WorkCover determines the manner of lodgement of the employer registration form and designs the actual form, but the minister has to designate the actual form in the Gazette, resulting in two parallel gazettal processes and unnecessary administrative processes. WorkCover briefs the minister on everything it publishes in the government Gazette prior to publication. WorkCover is also subject to the direction of the Minister for Workers Rehabilitation. Therefore, even with this change, there is ministerial oversight of the process.

The Hon. Rob Lucas has asked for a response to concerns raised by the HIA in relation to section 71. He states that:

Their comment to me appears to give very wide powers to the corporation to set premiums for classes of the industry with no independent review...

I have been advised that the process for setting the industry premium rates will continue in much the same manner as the industry level rates are currently set. There is no intention to use any provisions to discriminate against individual employers and, furthermore, premium-related decisions will continue to be reviewable under the new section 72M which replicates the current section 72 of the act.

Section 71 of the bill actually authorises the creation of WorkCover Premium Orders to be published in the Government Gazette after consultation with the minister. These Gazette documents will specify the detail of the experience rating and retro-paid loss schemes. Premium Orders will detail various caps and formulas and will be reviewed by actuaries each year.

The honourable member has sought a response in regard to whether the South Australian Mine Industry Association Incorporated is correct in its understanding that in section 72K(1):

...the penalty of $10,000 associated with a breach of this section was to be removed. This does not appear to be the case in the Revised Bill.

I respond to confirm that provision 72K(1), including the penalty of $10,000, replicates that in the current section 71; further, there has not been a proposal from the government to remove this penalty.

The honourable member has asked for a response to a further point raised by the South Australian Mine Industry Association Incorporated relating to section 76(3) of the bill, about the penalty of $1,000 associated with a breach. In response I confirm that the penalty of $1,000 replicates the existing penalty of $1,000 in section 76(3); further, there has not been a proposal from the government to remove this penalty.

The Hon. Rob Lucas asked for a response concerning concerns expressed by the Wine Industry Association regarding the removal of the guiding principle for setting premium rates. Currently, section 66(8) of the act specifies matters which the corporation must take into account when setting industry premium rates. These include the risk of the industry and financial state of the compensation fund. These provisions were removed in the drafting process in line with the objective of simplifying the provisions in the act and specifying relevant detail in supporting regulations and Gazette documents. I am advised that the corporation will recommend that the government replicate the provisions in section 66(8) of the act within the regulations so that the governing principles will remain in force.

The honourable member has asked for a response to the concerns expressed by the Wine Industry Association in terms of 'leviable' being removed. The term 'leviable' was removed because of the change in the terminology from levies to premium and because no references to 'leviable remuneration' are made anywhere else in the act. I am advised that WorkCover generally treats any reference to remuneration as 'leviable' remuneration. In response to the honourable member's question, the government does not consider the omission of this word to be a significant change and certainly rejects the premise of the South Australian Wine Industry Association that it will change the threshold test in practice.

The Hon. Rob Lucas has asked several questions in relation to a matter raised by the MTA and notes that the MTA is supportive of the new approach to employer payments. The first of these matters relates to WorkCover's ability to impose fines. There are a number of fines and penalties within the bill, most of which are existing provisions. As I have already stated, penalties are administered through the court system whereas fines are imposed by WorkCover.

The new fines and penalties—that is those that do not currently appear in the Workers Rehabilitation and Compensation Act 1986—are as follows: section 67 of the bill includes a new provision which will allow the corporation to impose a fine on the employer who is in default of the requirement to be registered under the act, of up to three times the amount of the premium that would have been payable had the employer been registered; and in section 72A(6)(b) of the bill there is power for WorkCover to impose a fine where two or more employers should have been grouped but were not because they provided false, misleading or insufficient or defective information.

During consultation, the employers strongly supported an approach that minimised gaming by individual employers aimed at avoiding premiums. Grouping is one area within the system that is open to such gaming. Although a specific fine was not subject to consultation, the need to include effective measures to minimise gaming was. A provision was included in the bill for such a purpose in section 72A. It enables a fine to be applied but not exceeding an amount set by regulations. Because the fine will be capped by regulation it will be subject to further stakeholder consultation, in keeping with the consultative approach of this process. Sections 76(5) and 76(6) of the bill provide for harsher penalties for employers who fail to register or who provide a false statement to a principal contractor. During the consultation process there was strong support from employers for harsher fines or penalties in these circumstances.

The second matter raised by the MTA in relation to grouping provisions was highlighted by the Hon. Rob Lucas giving the example of Orica. In response to this I provide the following explanation to clarify that employers, regardless of whether they are grouped, will continue to have their premium calculated in accordance with the industry classifications that apply to their own unique business activities.

I am advised that there are essentially two parts of the experience rating premium calculation. One part of the premium is based on an employer's individual remuneration and individual industry rate. The second part is based on an individual employer's claim experience. The weight given to each of these respective parts is determined by a sizing factor. The sizing factor essentially gives increasing weight to an employer's claim experience as their base premium increases.

To be clear, the base premium of the group is the aggregate for all the base premiums of the group members, which allows for each employer in a group to have their premium calculated in accordance with the industry classification rate or rates that reflect the industry in which the individual employer operates.

I am advised that the MTA has also sought clarification from WorkCover regarding the provision of section 72A(2)(b), which enables WorkCover to apply claims experience across grouped employers. This enabling provision relates only to the optional retro-paid loss arrangements, the detail of which will be contained in a WorkCover premium order.

The third matter raised by the MTA relates to joint and several liability provisions for grouped employers. I have already provided an explanation. The fourth matter raised by the MTA relates to the ability of the corporation to fix premiums at any time during a period. I can confirm that a premium will only be adjusted if an employer's circumstances have changed, for example, the business significantly increases or decreases in size or there is a change in business activity. In these situations WorkCover will rely on being informed of the change by the employer. It will, however, require the appropriate legislative power to amend the premium.

If WorkCover did not have the power to adjust the premium based on information provided by the employer during the year, the premium would only be adjusted at the end of the year as part of a hindsight calculation. This could mean an employer could be subject to a significant increase in premium payable in a very short time period.

The final matter raised by the MTA is in relation to cost recoveries on business transfers. In response, with respect to the honourable member who raised the issue, I am unclear as to how the concern relates to the proposed bill. If the honourable member can either link the concern to a specific section or provide further details, I would be happy to provide a response. Unfortunately, however, I am unable to answer the question in its current form.

I can confirm the following with regard to transfer of businesses. Transfer of business is provided for within the bill at 72P. This is a new section governing the transfer of claims experience with the transfer of businesses. This is an important element of experience rating. Without this transfer, the opportunity to 'game' the system by selling or closing and establishing a new business would be increased. Claims experience remuneration would follow where a transfer of business will be taken to occur when there is a connection between the two employers within the meaning of section 311 of the Fair Work Act 2009.

I am advised by WorkCover that the MTA has also requested assurance regarding section 72G of the bill, which rewords section 69C of the act. In particular, MTA seeks assurance that WorkCover will only take into account matters of direct relevance when exercising powers to review. I am advised estimates or determinations confirm that this is the intention of the provision.

The Hon. Rob Lucas made reference to the amendment proposed by the Hon. Mr Hood. This amendment applies to proposed section 72K of the bill, which closely replicates current section 71. I will speak to the amendment when it is considered at the committee stage, but the government indicates that it is prepared to support the amendment.

The government appreciates the intent behind this proposal, and although legislative change is not necessarily the most appropriate or effective avenue with which to deal with such administrative matters, it is not an amendment which will negatively impact on the implementation or functioning of the new approach to employer payments.

In summary, the bill underpins a major effort to turn around the South Australian workers compensation scheme. Time is of the essence; if this legislation is not passed during this session, it will not be possible to commence the new approach in the 2012-13 financial year.

There is currently no financial incentive for employers to focus on preventing workplace injuries and supporting injured workers to remain at work or, if time off is required, to return to work as soon as possible. The experience rating system will provide a direct financial benefit to employers for preventing injuries and reducing the cost of claims. It will also penalise those employers who perform poorly in comparison to the industry in which they operate.

Sustained improvements in injury prevention and the cost of claims are essential to achieving a reduction in the average rate and the scheme's unfunded liability. A considerable amount of work will need to be undertaken following passage of the bill to commence on the new approach on 1 July 2012. This includes consultation on the detailed aspects of the new approach, which will be regulated and gazetted.

Successful passage of the bill is essential, otherwise it will delay implementation. The finalisation of an employer payments approach has been an iterative process, focused on improving outcomes for employers. All major concerns raised by stakeholders have been resolved. There is no disagreement about implementing this new approach; there are some differing views about how to frame legislation.

I urge members, when considering this bill, to support it in its entirety. It is obviously important to consider those amendments, as I have already outlined. Again, I thank honourable members for their contribution.

Bill read a second time.

[Sitting suspended from 13:02 to 14:17]