WorkSafe VIC Workers Compensation Insurance Premium Explained & 3 Steps to Reduce It
The workers compensation insurance premium, for most businesses, is one of the biggest single costs paid every year.
One of the most common questions I am asked is “how does my WorkCover premium calculation work?”
Understanding how your premium is calculated is the first step in turning it into a variable cost item – something that can be influenced right throughout the year.
In all fairness though, it isn’t easy to understand and there’s a lot to it. Hopefully today I can demystify WorkCover premiums for you.
There are three main factors making up the DNA of a WorkCover premium:
Industry classification
Rateable remuneration
Claims costs
Industry Classification
Every business in Victoria will be classified under at least one WorkCover Industry Classification (WIC). Some diverse businesses have several classifications and others, such as labour hire, can have 100 or more.
Each classification has its own industry rate. Riskier lines of work (such as mining) attract a higher rate. More controlled work (such as office administration) attract a lower rate.
Your industry rate basically sets your starting position.
Industry rates change once a year and generally respond to the volume and cost of claims that occurred across the industry in the year prior.
Your industry classification, and therefore industry rate, is determined by the predominant activity performed by the business that generates income.
Why did I underline that?
Because it’s not about what each individual in the company does on a daily basis, it’s about what generates the income.
Your business might manufacture mattresses, which has an industry rate of 2.611%. However half of your staff are actually in a call centre, selling mattresses and managing customers. A call centre has an industry rate of just 0.278%.
Shouldn’t half the business be classified as a call centre? If so, there’s a lot of money to be saved.
Sorry, but this is not the case. The call centre is deriving its income from the mattress manufacturing activities. Everyone will be classified as mattress manufacturing.
There can be some exceptions. If the same company manufactures 70% of its mattresses locally and imports the other 30% from overseas as finished products, then part of the business may be classified as wholesaling.
Rateable remuneration
This is basically the wages and other entitlements paid to the workforce. The amount a business pays in wages directly impacts the calculation of their workers compensation insurance premium. It’s not easy to determine and it helps to have a good payroll system and/or an expert on your side.
For example, a company with 200 employees might have rateable remuneration of $15 million.
Here is a list from WorkSafe Victoria of what should be included and excluded
Basically though, your remuneration is an indicator of the size of your company.
High remuneration = big company = high premium
If your rateable remuneration increases you should expect to see a fairly linear increase in your WorkCover premium.
Businesses are asked to estimate their rateable remuneration at the beginning of the financial year and are later asked to certify their remuneration after 30 June.
Be sure to update your WorkSafe agent of significant increases in your remuneration estimate. There is a penalty if your remuneration increases by 20% or more and you don’t update your policy. You can re-estimate as many times as you like throughout the year.
Claims Costs
This is arguably the most important factor.
Why? Because it’s the one we can most readily influence. Claims performance, which is based on the costs of claims over previous years, significantly impacts your premium rate.
Costs attached to the claims lodged against your business will correlate to an increase in your premium rate. Claims generally impact your premium for 3 years.
Effective management of claims and support for injured workers can help reduce your overall claims costs.
It’s not a dollar for dollar increase. In fact, often the premium impact over three years is greater than the actual real-world costs that have been paid over the life of the claim. This is partly the reason some employers choose to cover some injury expenses in-house, even if the worker hasn’t lodged a claim.
Higher claims costs = more premium to pay.
Some aspects of your premium we have little direct control over. Your industry classification will be determined by the type of work the business performs. Rateable remuneration will usually be determined by market factors.
Claims costs however, are the one thing that businesses can actively intervene on and influence right here and now.
Claims costs in Victoria are fluid. They can change from one month to the next. This is because your claims costs are made up of the actual real world dollars that have been paid, plus a Statistical Case Estimate (SCE).
The SCE can go up or down over time depending on what is happening on the claim.
Manage your claims well and you will bring the SCEs down over time. When your premium is calculated you should end up paying less premium than if you had many expensive open claims on the books.
Employers with nil claims costs can actually have a lower premium rate than the standard for their industry.
Please be aware that claims costs only impact businesses with a remuneration over $200k.
The Basic Premium Formula
Using the abovementioned data, WorkSafe Victoria takes your industry rate, multiplies it by your rateable remuneration, then adjusts up or down (depending on whether you have high or low claims costs) to come up with your business’s premium rate and a final premium amount to be paid. The total premium is calculated by considering your industry rate, rateable remuneration, and claims costs.
Keep your claims costs as low as possible and you won’t pay unnecessary premium. Adjustments to claims costs and other factors can influence your future premiums.
Hint: You keep your claims costs down by:
not injuring people in the first place;
managing some of the costs in-house if the employee chooses not to lodge a claim;
achieving swift Return To Work outcomes on your claims.
Remember though that everyone has a right to lodge a claim and employers should never coerce an employee from doing so.
3 Steps You Should Take
I mentioned that claims costs are really important.
Do you know what your claims costs are right now?
Do you receive reporting on your claims costs?
You should.
1. Contact your agent and set up a monthly claims costs reporting schedule
Review it every month and have strategies in place on all claims but really hone in on the biggest, most expensive ones and any “open” claims. Review your existing policy annually to ensure it reflects any changes in your business operations.
2. Review your industry classification annually
Sometimes processes change and this can be enough to alter the predominant activity of your business. If you are a new business, ensure your industry classification is accurate from the start to avoid overpaying on premiums.
A construction business I worked with started using more wooden structural materials than steel. We reviewed their classification and requested a change. This resulted in a healthy reduction in premium rate – even though their finished product remained fundamentally the same.
3. Contact us for a free, no-obligation strategy call
We’ll help you address your most pressing challenges and connect you with potential solutions if appropriate. We can also assist you in managing your WorkCover insurance and ensuring compliance with all regulations. We provide guidance on workplace injury rehabilitation to help injured workers return to work swiftly and safely.
