Businesses that employ staff are required to have Workers' Compensation insurance. The aim of Workers’ Insurance is to cover the cost of any work-related injuries sustained by workers in an Organisation.
The Work Cover provider of the particular State collects workers’ compensation premiums from Employers to cover the costs associated with work-related injuries and illness. This includes payment of benefits to an injured worker, to cover them for the loss of wages, medical and other health-related treatment, rehabilitation and lump sums for permanent disabilities.

The Workers' Compensation Premium

The calculation of the premium is based on a variety of factors, including:

• The Employer’s industry;
• Working Conditions;
• The amount of deemed wages paid to the workers;
• The registration to specific Apprentices and Traineeship Government Programs.

To ensure their workers are covered by work cover insurance and calculate the correct premium, Employers must provide information regarding the following:

Employer's Industry
Businesses must provide a full description of their business activities to their Work Cover provider to establish the correct industry type. Once assessed, the Work Cover provider will assign the business a Workers Compensation Industry Classification (WIC) to enable the correct calculation of the premium. 

Workers' Remuneration
Employers must submit an Annual Annual Declaration and declare the cost of remuneration paid to their workers over the year.

Working Conditions
In some Australian States, Employers are also required to indicate whether their workers are exposed to asbestos in the course of their employment.

The State Work Cover provider will then use the values provided on the Annual Declaration and the Business' WIC and calculate the premium for the year. It will then use either the same declared remuneration or an estimate of remuneration (provided by the Employer) to calculate the premium for the forthcoming year. A Dust Diseases Levy rate is added to the premium of those employers whose business activities involve the exposure of asbestos to their workers.

Definition of Workers

The Worker Compensation Act defines a ‘worker' as any person who has entered into, or who works under, a contract of service or a training contract with an employer, whether by a way of manual labour, clerical work, or otherwise or whether the contract is expressed, implied, is verbal or in writing. Only an individual can be a worker.
A person could be deemed as a worker under the NSW workers’ compensation system, but not by the taxation system. Under the workers’ compensation system, there are four types of workers:

• Employees > Individuals who enter into an Employment engagement with the business and receive regular salary payments from their employer.
• Directors > A company director is appointed to a company to manage the day-to-day business activities and finances and to ensure all statutory filing obligations are met. Directors can be paid via a Company’s payroll system or via Director’s Fees or Dividends. 
• Apprentices > Apprentices are individuals employed through an approved training contract by the Department of Industry State Training Services. To be eligible an employer must have a valid workers’ compensation policy and have entered into a State Department of Education and Communities approved contract with the apprentice defined in a designated trade vocation.
• Contractors > A contractor is an individual who manages his own business, has a valid Australian Business Number (ABN) and is hired to perform a specific contract of service. Contractors can be deemed as ‘workers’ by the Workers’ Compensation Act. Contractors who are not deemed as workers by the Workers’ Compensation Act must have their own workers' insurance policy.

Definition of Wages

The Workers’ Compensation Act defines wages as payments made to a worker or for the benefit of a worker. Wages that affect the calculation of the Workers’ Insurance premium include, but not limited to: Employees’ Gross Earnings, Superannuation, Directors’ Fees and payments to Contractors’ invoices.

Wages Tax Treatment

• Earnings > The premium is calculated on the Gross Amounts before PAYG taxes are withheld;
• Fringe Benefits > The premium is calculated on the Grossed up amount of the Fringe Benefit provided;
• Contractor Payments > The premium is calculated on the contractor’s invoice amount exclusive of GST. If Superannuation is paid to the contractor’s, this has to be included in the wage declaration.