WorkCover & Payroll Tax – Am I Obliged?
We are frequently asked questions about obligations for WorkCover and Payroll tax. In this article we explore the details, cutting through the legal jargon so you can gain a greater understanding of how it effects you and your business.
WorkCover is a compulsory insurance all Victorian employers are required to take out. The insurance covers employers against the costs of injury or illness that occurs in the workplace. This covers both the employer themselves as well as any employees.
The insurance can cover the following:
- Replacement of lost income
- Medical and rehabilitation treatment costs
- Legal costs
- Lump sum compensation in the event of a serious injury
As the director of a company without employees, do I need to pay WorkCover?
If you receive a total salary and/or wages in excess of $7,500 over a 12-month period, you are required to take out WorkCover insurance.
What if I’m a sole trader or in a partnership?
WorkCover does not consider you to be an employee, and you are therefor not required to pay WorkCover insurance under the scheme. However, it is recommended that you take out some form of insurance in the event of an accident where you are unable to work.
How is my WorkCover insurance premium calculated?
The rate is calculated differently dependent on your businesses ‘rateable remuneration’. Rateable remuneration is the combined total salary and wages, superannuation and other benefits paid to employees. The industry you are in, as well as each state will impact which rate your premium is calculated at.
For small employers (<$200,000): For the 2015/2016 year, if your rateable remuneration is $200,000 or less, the premium is calculated using the ‘industry rate’ and is not impacted by any WorkCover compensation claims your company may have made.
For Large employers (>$200,000): For the 2015/2016 year, if your rateable remuneration is more than $200,000, the premium is calculated using the ‘industry rate’ PLUS any recent (1 Jan 2012 – 30 June 2014) compensation claims that have been made.
Are there any exceptions?
Not all organisations are required to register; non-for-profit, public benevolent institution, religious institutions you are exempt from taking out WorkCover Insurances, however it is recommended you do so.
Registering for WorkCover
You can register for WorkCover online, or via an application form. The application will ask for information regarding your business such as, number of employees, physical location of work, activities undertaken, materials and equipment used, etc. The application will also ask for projected revenue, direct costs and labour expenses, therefore it may be wise to consult with your accountant before completing the form.
Having multiple businesses
Multiple entities or businesses can be grouped for WorkCover purposes where: the two are related, a person has controlling interest in two or more businesses or have an inter-use of workers (i.e. is employee of both businesses held by same person). WorkCover can provide you with a conclusive determination if you wish to have a business excluded from a group.
Who is covered?
Anyone who receives wages within your business or business group is covered by your WorkCover policy. It is important to ensure that you have declared the correct value of wages and number of employees within your WorkCover policy to ensure that in the case of a claim, the employee is covered.
- Supplies services to another person for or in relation to the performance of work,
- Receives services from another person for or in relation to the performance of work,
- Gives out goods to natural persons for work to be performed by those persons in respect of those goods and for re-supply of the goods to the first mentioned person, or where that person is a member of a group, to another member of that group.
- In short, a relevant contract exists where the contractor uses labour services to complete the contract. There are some exclusions, and these include: Owner-drivers (goods transport where contractor provides vehicle), insurance agents and door-to-door sellers.
When do I need to register?
In Victoria you need to register for payroll tax with the State Revenue Office when your businesses monthly wages exceed $45,883, and annually is greater than $550,000. Each state and territory in Australia has its own threshold and lodgement requirements. If you have employees in different states within Australia, you need to be aware of these thresholds. The monthly wages are comprised of: wages, salaries, allowances, commissions, bonuses and super contributions.
Not all organisations are required to register; non-for-profit, public benevolent institution, religious institutions you are exempt from paying payroll tax.
Are subcontractor payments included?
Some contractor payments are included in calculating the wages amount, particularly where the contractor is deemed to provide predominantly labour services and work exclusively or primarily for one designated person in a financial year.
Even though you may consider someone to be a contractor, the State Revenue Office may consider them a regular employee. For example, only a living breathing person can be an employee, so generally if you engage someone though a trust or company structure, these are not considered employees by normal measures. However, the State Revenue Office may include they payments under the threshold.
There are other factors to consider when determining whether a person is a contractor or employee for payroll tax purposes. These can be specific to each business and may change in combination with other factors. Some of these include; who has control and direction, the contract and practical relationship between the parties, are the contracts in place to achieve a “given” or determined result, is the business independent, does the contractor or business have the power to delegate, who bares the risk of the contract, who provides the tools and equipment.
If it is deemed that the subcontractors are in fact employees for payroll tax provisions, the next step is to then consider if the contract is “relevant”. This is where is gets highly technical and advice on the topic is recommended.
A contract is considered to be relevant where a person:
There are exclusions to these which are fact specific, dependent on the client’s circumstances, so please don’t hesitate to contact our office to establish if your subcontractors are considered employees under the payroll tax provisions, and if their contracts are considered relevant contracts
It is important to note that If contractor fees are deemed to form part of wages, they are included as GST exclusive.
Payroll tax reporting requirements
You are required to lodge monthly returns and an annual reconciliation report to the State Revenue Office, so they can ensure that your business has paid the correct amount of payroll tax, and has recorded your wages correctly for the year.
The PTX Express service provided by the State Revenue Office is the easiest way to process and manage your payroll tax obligations. You can lodge your monthly returns and your annual reconciliation through this service.
If you have any further questions on either WorkCover or payroll tax for your business, please contact SMART Business Solutions on 0359 11 7000 or firstname.lastname@example.org