When an Employee is absent from work due to illness or injury the Insurance Company responsible to pay their Workers' Compensation claim may request the Employer to pay these payments through payroll. As Workers' Compensation only covers a percentage of the Employee's average wages, the Employer may also decide to top-up the claim payment allowing the Employee to still earn the same salary.

This User Guide will include some of the more common scenarios an Employer may come across when paying Workers' Compensation through payroll.

The first step is to set up the Workers' Compensation pay item correctly, this is covered in a separate User Guide available on our Knowledge Base site. Once the Pay Items are set up, all changes to pay workers' compensation are completed in the Employee Contact screen, if you set this correctly, you won't have to make any other changes when you process the pay run.

Process the Workers' Compensation Leave

Go to Payroll > Employees
Open the Employee details and click on the [Leave] Tab

è The Employee's Leave Tab
Click on [New Leave Request]

è The New Leave Request screen opens
Select/Enter the following details:
- Type of request > Select: Workers' Compensation
- Description > Type: Workers' Compensation or Injury on Site
- Start and End Date > Type the date from and to of the workers' compensation period taken
- Hours > Make sure the total hours of leave calculated by Xero are correct
Click on [Approve]

Note: Depending on your internal payroll processes, your Employee could process the Leave Application through My Payroll and submit it to you for approval.

Process Workers' Compensation Payments without accruing leave entitlements

The requirement of an Employer accruing entitlements during an Employee's absence on Workers' Compensation varies depending on the State where the Employee resides. If you are unsure whether you need to accrue leave entitlements during Workers' Compensation, please refer to the Workers' Compensation blog published on our website.

Make sure that your Workers' Compensation Pay Item is set not to accrue leave.
Go to Payroll > Employees
Open the Employee details and click on the [Pay Template] Tab

è The Employee's Pay Template Tab
Click on [+Add Earnings Rate]

è The Add an Earnings Line screen opens
Select/Enter the following details:
- Earnings Rate > Select: Workers' Compensation
- Calculation Type > Select: Enter Rate
- Click on [OK]
Enter the hours of Workers' Compensation pay for the applicable Pay Period (38 weekly | 76 fortnightly | 152 monthly), or less if the Employee only has to be absent on Workers' Compensation for a few days.
Note: if the Employee is absent for only one pay period, you may want to take the above steps directly in the Pay Run, instead of changing the Employee's Pay Template.
Enter the hourly as per the Workers' Compensation letter confirmation
Click on [OK]

Top-up Workers' Compensation to pay the Employee's Regular Wages

As an Employer, you may want to make sure the Employee is not underpaid due to an accident that occurred on-site. Therefore, you may decide to pay the difference between the Workers' Compensation Claim and the Employee's regular wages.

The first step is to work out the difference between what the Employee will receive through Workers' Compensation and their regular pay rate.
For example, the employee earns $30 per hour and the Workers' Compensation payable claim is 95% of the $30. You will then calculate $30*95%= $28.50. And then $30-$28.50 = Top-Up Payment of $1.50 per hour.

It is important to separate the two components, as the Workers' Compensation payment is not included in either the Annual Workcover declaration or the Payroll Tax calculation.

Follow steps 1-8 from above
Change the Rate in the Ordinary Hours line to the Top-up rate you have calculated
Save the Pay Template

è The Employee's Pay Template Tab

Process Workers' Compensation accruing only Annual Leave

In some States, the Employer is required to accrue Annual Leave whilst the Employee is on Workers' Compensation, but not Personal Leave.

Make sure that your Workers' Compensation Pay Item is set to accrue leave.
On the Employee details and click on the [Leave] Tab

è The Employee's Leave Tab
Click on the Personal Leave accrued hours

è The Edit Leave Type pop-up screen opens
Change the Leave Calculation Method to: No Calculation Required
Click on [Save]
Note: when the Employee returns from Workers' Compensation you will need to re-set the Personal Leave calculation to: Based On Ordinary Earnings

Receive Workers' Compensation Claim from the Insurance Company

When the Insurance Company pays the Workers' Compensation claim you will need to code this payment to the Insurance Claim income account.

Go to the Bank Feeds screen and find the Claim Payment from the Insurance Company
Select the [Create] Tab

è The Bank Feed screen
Select/Enter the following details:
- Who > Select/Create the Insurance Company contact paying the Claim (i.e. iCare)
- What > Select: Insurance Recoveries - Workers' Compensation (29#)
- Why > Type: Workers' Compensation claim #employeename
Click on [OK]