Workers' compensation is a form of insurance providing wage replacement and medical benefits to employees injured in the workplace. Employees who have suffered a work-related injury or illness may be entitled to claim workers’ compensation. Please refer to your HR Consultant if you need help with submitting a Workers' Compensation claim.

If the Claim is approved, the Insurer will then require the submission of an estimate of the employee's wages. This will allow the insurer to make the correct payments in lieu of wages. The percentage of wages payable for Workers' Compensation varies from State to State and depends on the length of time the worker is required to be absent from work:

NSW

• 1 -13 weeks > 95% of the employee's estimated wages;
• 14 - 130 weeks > 80% of the employee's estimated wages.

QLD

• 0 - 26 weeks * > either 100% of the Employee Award pay, or 85% of the Employee Average wages earned within 12 months from the claim date (whichever is higher);
• 27 - 104 weeks * > either 100% of the Employee Award pay, or 75% of the Employee Average wages earned within 12 months from the claim date (whichever is higher);
• 104 - 260 weeks * > A medical assessment is required. If the Employee reaches an impairment level of 16% or more, WorkCover will pay the equivalent amount of the Centrelink current pension rate. If the Assessment results in an impairment of less than 16% worker's compensation payments will stop; 
• After 260 weeks (5 years) * > all workers' compensation claims automatically stop

* WorkCover QLD restricts all claim payments to a maximum claim threshold of $375,000 (as of FY 2022, however, the threshold amount is subject to annual review). Once the worker's compensation payment has reached the threshold, the claim payments automatically stop (regardless of the number of weeks the payments have been made). However, WorkCover will still reimburse medical expenses related to the injury up to 5 years from the claim date.

The Employer is responsible to pay the Employee through their regular payroll and the Insurer will then pay the claim to such Employer.

Employer's Liabilities on Workers' Compensation Payments

Workers' Compensation payments must be processed as Gross Wages. The payments may also attract Superannuation and accrue leave entitlements. This varies based on the Employee's Award and State's jurisdictions. More information on Employer's liabilities on Workers' Compensation is available on the blog published on our website.

This User Guide provides step-by-step instructions on how to set up the Workers' Compensation Pay Items in Xero Payroll Settings. Once you have set up the Pay Items correctly, you will need to amend the Employee's Pay Template to ensure Workers' Compensation payments are paid correctly through Payroll. This is covered in a separate User Guide on our Knowledge Base Website. 

Create the Workers' Compensation Accounts

In order to process the Workers' Compensation payments correctly, you will need to create two accounts: Workers' Compensation Wages Expenses (used to link to the Pay Item) and Workers' Compensation Claim Payments (used to code the payments made by the Insurer). 

Create the Workers' Compensation Expense Account

1. Go to Accounting > Chart of accounts
2. To create a new Expense Account click on [Add Account]
   
   è  The Add New Account screen
   
   
   
   
3. Select/Enter the following details:
   • Account Type > Expense
   • Code > Enter a 3-digit code starting with 46
   • Name > Type: Employees - Wages Workers Comp.
   • Tax > Select: BAS Excluded
4. Click on [Save]

Create the Workers' Compensation Claim Payment Other Income Account

1. Go to Accounting > Chart of accounts
2. To create a new Other Income Account click on [Add Account]
   
   è  The Add New Account screen
   
   
   
   
3. Select/Enter the following details:
   • Account Type > Other Income
   • Code > Enter a 3-digit code starting with 29
   • Name > Type: Insurance Recoveries - Workers Comp.
   • Tax > Select: BAS Excluded
4. Click on [Save]

Create the Workers' Compensation Pay Item

1. From the Organisation Menu go to Settings > Payroll Settings
2. Click on the [Pay Items] > [Workers' Compensation] Tab
3. Click on [Add] > Ordinary Time Earnings
4. Select/Enter the following details:
   • Earnings Name > Type: Workers' Compensation
   • Display Name > Type: Workers' Compensation
   • Rate Type > Select: Rate per Unit
   • Type of Units > Type: Hours
   • Rate per Unit > Leave Blank
   • Account > Select: Employees - Workers' Comp. (46#)
   • Exempt from Superannuation... > Select this option if the payment attracts Superannuation, if not, Leave it Blank (refer to the blog published on our website)
   • Reportable as W1... > Select this option 
5. Click on [Add]
   
   è  The Pay Item screen
   
   
   

Create the Workers' Compensation Leave Pay Item

1. From the Payroll Settings, select the [Pay Items] > [Leave] Tab
2. Click on [Add] > Unpaid Leave
3. Select/Enter the following details:
   • Leave Name > Type: Workers' Compensation
   • Type of Units > Type: Hours
   • Leave Loading Rate > Leave blank
   • Normal entitlement > Leave blank
   • Show Balance on Payslip > Do Not select this option 
4. Click on [Add]
   
   è  The Pay Item screen