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At the beginning and end of each workers compensation insurance policy period an employer must supply their insurer with a declaration of their wages. Employers declare their wages on the Wages Declaration Form supplied by their insurer. Where a payment to a worker is made in lieu of wages (regardless of the terminology used to describe that payment), the payment is counted as wages for the purposes of premium calculations. In December 2002, the NSW Government passed legislation aimed at improving employer compliance with workers compensation law. The law now requires employers to calculate their wages for workers compensation premiums in much the same way they do for payroll tax. The expanded definition of wages is intended to be revenue neutral; it is not a mechanism to increase the WorkCover Scheme’s premium income. As the amended wages definition will increase the amount of wages counted for workers compensation purposes, the average premium rate of 2.87% has been reduced by 10.3%. As a result, WorkCover’s average premium rate for 2003–04 is 2.57% (net of GST). In addition, the factors (‘F’ factors) in the experience component of the premium formula have been adjusted to help ensure that, on average, the premiums collected remain constant. Below is a general summary of what is considered wages for the purposes of premium calculations – it is not an exhaustive summary. TOP Definition of wages for new or renewed policies commencing from 4.00pm 30 June 2003 ‘Wages’ includes total gross earnings (before tax deductions) and some payments that are not generally thought of as wages. It includes: - salary / wages
- overtime, shift and other allowances
- over-award payments
- bonuses, commissions
- payments to working directors (including directors’ fees)
- payments to pieceworkers
- payments for sick leave, public holidays and the associated leave loadings
- value of any substitutes for cash
- employer superannuation contributions (including the superannuation guarantee levy)
- grossed-up value of fringe benefits (allowances subject to fringe benefits tax are counted at the grossed-up value, that is the value of the benefit multiplied by the relevant Australian Tax Office fringe benefit formula*)
- long service leave payments (including lump sum payments instead of long service leave)
- termination payments (lump sum payments in respect of annual leave, long service leave, sick leave and related leave loadings)
- trust distributions to workers where the distribution is in lieu of wages for work done for the trust.
It does not include: - directors' fees paid to non-working directors
- compensation under the Workers Compensation Act 1987
- any GST component in a payment to a worker.
* Non-profit organisations, public benevolent institutions (PBIs) and charities should continue to declare worker benefits that aren’t subject to fringe benefits tax at the net value. Once the worker benefits exceed the Australian Tax Office fringe benefit threshold, the employer must declare the benefit at the grossed-up value. WorkCover’s Wages Definition Manual provides a guide on the payments to workers that are taken into account for the purposes of calculating an employer’s workers compensation insurance premium. For example, employers who take on new entrant trainees on or after 1 January 2004 will need to include those trainees as workers on their workers compensation policies and declare their wages to their insurers. For policy periods commenced prior to 4.00pm 30 June 2003, employers should declare wages under the definition that applied at that time. Employers should use this definition for the entire term of the policy. Chapter C of the Wages Definition Manual outlines the payments that have been changed by the expanded definition of wages.
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