Guidance material - Section 7A Directions

7A(a) - Corporate group test

Background

Section 7A(a) of the Ministerial Direction requires that an applicant be a member of a corporate group in which a majority of employees in the corporate group are, at the time of the application, covered by the Act.

What does ‘covered by the Act’ mean?

An employee is ‘covered by the Act’ when their workers’ compensation benefits and entitlements are calculated under the Commonwealth Safety, Rehabilitation and Compensation Act,1988.

What is a corporate group?

The corporate group for this assessment means a group of 2 or more bodies corporate, including the applicant, that are related to each other under section 50 of the Corporations Act 2001. When identifying the applicant’s corporate group, the following entities should be included:

• All bodies corporate related to the applicant body corporate where those related bodies corporate are:

  1. a holding company of the applicant; or

  2. a subsidiary of the applicant; or

  3. a subsidiary of a holding company of the applicant.

Only corporations registered in Australia are to be included in the corporate group. Employees should be excluded from the corporate group count where they are:

• normally employed outside Australia; and

• not covered by an Australian workers’ compensation scheme.

Calculating employee count

When calculating the number of employees in the corporate group, head count (ie: number of actual persons) should be used rather than FTE (full-time equivalent), given that this is a better reflection of the number of actual people to be affected by the proposed change in legislative coverage.

7A(b) - No overall reduction

Background

Section 7A(b) of the Ministerial Direction requires that the grant of licence not result in an overall reduction in workers’ compensation entitlements for the employees of the applicant to be covered by the Act.

This Direction serves as a further clarification of the following requirement in Section 104(2)(c) of the SRC Act:

(c) the grant of the licence will not be contrary to the interests of the employees of the licensee whose affairs fall within the scope of the licence

In other words, the test of whether the grant of licence is or is not contrary to the interests of employees is now, in practice, expanded to include a requirement that the grant of licence not result in an overall reduction in workers’ compensation entitlements for the employees.

Detail of requirement

In conducting an assessment of the applicant against this requirement, the Commission will consider the following items of evidence:

1. A statement from the applicant explaining how it considers it meets this requirement.

2. Any submission made by unions or employees about benefits and entitlements under the SRC Act during the applicant’s consultation process - see Guidance on self-insurance licence application evaluations (PDF, 340.5 KB) for more information.

3. The liability report prepared by the actuary for the applicant, including commentary in that report on overall levels of projected benefit payments under an SRC licence compared with projected payments should the applicant’s current arrangements in state/territory schemes continue.

4. A breakdown by headcount of the number of employees to be employed by the applicant in each state and territory.

5. A summary of claims data for the five years preceding the date of application, broken down by state/territory of claim, showing information relevant to determining the impact of moving to SRC Act coverage on employees based on common claim types and profiles, including:

   • Median claim duration

   • Number and amount of lump-sum payments relating to incapacity

   • Number and amount of permanent impairment lump sums

   • Number and amount of death benefit claims

   • Number of journey claims

   • Number, amount and redacted details of common law settlements

6. Evidence of any recent or planned significant changes to benefits or entitlements in relevant state/territory schemes or the SRC Act scheme.

Use of evidence

The following are broad principles describing how each item of evidence will be considered:

1. Applicant statement: This will help inform the Commission of the applicant’s reasoning for seeking the licence, why it considers the licence will not reduce employee benefits and entitlements and provide an opportunity for the applicant to clarify any particular differences in anticipated benefits and entitlements under SRC Act coverage.

2. Consultation feedback: This informs the Commission of any particular areas of concern from employees and their representatives in moving to coverage under the SRC Act.

3. The liability report will provide the Commission with projected claims payment forecasts for a number of years beyond licence commencement. This will provide an overview of the claims history under current arrangements, and a projection of whether the total quantum of future claims payments under an SRC Act licence will be at equivalent, lesser or greater level than anticipated if the business remains under current state/territory arrangements (which should include claims where a lump sum or settlement payment has been made in order to finalise a claim, and be based on a mature claims portfolio).
   
   In theory, if the total quantum of forecast claims payments is projected to be equal to or greater than that under the continuation of current arrangements, it may be prima facie evidence that the overall benefits may not be reduced.

4. Employee headcount breakdown and claims data: When combined, this data will allow the Commission to identify in detail what proportion of the workforce will be affected by specific differences in benefits between existing state/territory schemes applicable in their jurisdiction of employment and the SRC Act scheme.

   The Commission will assess these differences through use of a number of tables taken from the Safe Work Australia biennial publication Comparison of Workers’ Compensation Arrangements in Australia and New Zealand.^[1]

   For each benefit or entitlement set out in the tables, any variance (positive or negative) between each individual state/territory benefit or entitlement and the SRC Act scheme will be identified, along with the percentage of the applicant’s workforce that might be affected by the variance.

5. Changes to legislation: Comcare will research any recent or planned changes to workers’ compensation legislation in jurisdictions where the applicant has employees to ensure the analysis of differences in coverage if employees transfer to the SRC Act is accurate and timely.

Assessment of scheme differences

In considering the evidence, the Commission has full discretion as to how to take claims and legislative data and scheme entitlements into account. However, in general, the Commission’s decision-making process will be as follows:

• Comcare will conduct an assessment against each of the identified entitlements in each state/territory scheme where the applicant employs staff. Comcare will present this information in a table to the Commission along with the percentage of head count affected by each reduction or increase in entitlements (see below).

• Additional information provided by unions/employees as part of the applicant’s consultation evidence will also be considered, as well as projected claims payments as forecast in the actuarial report.

• Relevant tables will identify for the Commission:

  • Which entitlements might be less beneficial, and for what percentage of employee head count in the relevant states/territories.

  • Which entitlements are more beneficial, and for what percentage of head count in the relevant states/territories.

  • Any specific factors raised in the application or through Comcare’s own analysis relevant to the consideration (eg: noting industry-specific injury and claims profiles) to help guide the Commission’s decision on the overall effect of moving to the SRC Act.

• Comcare will conduct the assessment as each scheme stands at the date of the application. However, if a significant legislative change occurs between the date of application and the date of Commission decision, it may also be taken into account (for example, if any significant changes to a state scheme or SRC Act entitlements).

Broad assessment principles

The decision as to whether or not a licence under the SRC Act will or will not result in an overall reduction in workers’ compensation entitlements for the applicant’s employees will be made at the Commission’s discretion in relation to the merits of each application. However, the Commission will be guided by the following broad assessment principles:

1. Some individual benefits or entitlements may be less generous under the SRC Act.

2. The Commission may weigh any individual reduction in entitlements against the overall package of entitlements under the SRC Act to determine if the SRC Act scheme represents an overall reduction.

3. There may be greater weight given to reductions affecting larger cohorts in the applicant’s workforce.

4. The direction refers to the ‘the employees’ rather than ‘each/any individual employee’, so it is entitled to consider whether the applicant’s workforce as a whole will incur an overall reduction in entitlements, with a reduction in some individual entitlements or some individual employees experiencing an overall reduction not being decisive.

5. The Commission may consider the typical course of workers’ compensation claims in the applicant’s industry in determining the degree of reduction of an entitlement (for example, a short-term reduction in weekly incapacity entitlements may be outweighed by the likelihood of long-tail incapacity payments and ongoing medical treatment under the SRC Act than in the relevant state/territory scheme).

6. Some individual entitlements may not be sufficiently significant or common to warrant inclusion in the assessment.

7. Consideration may also be given to an analysis in the actuarial liability report which must be submitted as part of an application.

8. The Commission will consider the question of ‘no overall reduction’ in a holistic way, meaning that, on balance, across all employees viewed as a whole, the selected package of entitlements will not be reduced for the employees of the applicant if the applicant is granted a licence. Where a reduction does occur, it should:

   • be for a minority of the workforce; or

   • be of a relatively small amount; or

   • be offset by other benefits or a more favourable process; or

   • involve a rarely-used entitlement.