Grouping Rules

What is Grouping?
Grouping is a mechanism which allows WorkSafe to treat two or more employers as a single employer for WorkSafe premium purposes.In summary the main purposes are essentially : -

1. the classification of workplaces of some grouped employers
2. as one of the determinates of whether businesses are arms length for the application of succession
3. in rare cases for the calculation of premium on the basis of the group as a whole
4. joint and several liability for premiums.

• The grouping provisions cause employers which are related, associated or commonly controlled to be members of a group.
• The Accident Compensation (WorkCover Insurance) Act 1993 (the Act) has always contained Grouping Provisions.
  

When does a Group Exist?
Broadly, there are three circumstances where a group will exist under S66 of the Act -

• Related Corporations : s66(1)(a)
• Inter – Use of workers : s66(1)(b) or (c) or (d)
• Commonly Controlled Businesses : s66(2) – (7)

Related Corporations
Corporations Related Under Section 50 of the Corporations Act 2001 (See S66 of the Act).

Two corporations will be grouped where one, being an employer, is related to the other under section 50 of the Corporations Act 2001. This is more commonly described as a holding/subsidiary relationship.

Accordingly, a corporation will be grouped with another corporation under this section if it:

• holds more than 50 per cent of the issued share capital of that other corporation; or
• controls the composition of the board of directors of that other corporation; or
• can cast, or control the casting of, more than 50 per cent of the votes which can be cast at a general meeting of that other corporation.

For these purposes, a group will not only include those corporations in a direct holding/subsidiary relationship but also:

• corporations with a common holding company; or
• corporations with a common ultimate holding company.

A group under this section is a mandatory group. Under S67 of the Act, WorkSafe Victoria must not exclude a corporation from such a group, even if the business carried on by that corporation is independent of, and not connected with, the business of the other corporations in the group.

The grouping provisions apply to corporations regardless of where those corporations are located. A common problem involves Australian corporations that are subsidiaries of an overseas parent corporation that has other subsidiaries operating in Australia. Often the subsidiaries are unaware of each other’s existence; however, the holding and subsidiary corporation provisions will still apply to group the corporations. It is unlikely; however that premium calculation will be affected by such distant relationships.

Inter-Use of Workers

An employer will be grouped with another entity under section 66 (1)(b) or (c) or (d) where there is, for want of a better term, 'inter-use' of workers between different entities as described in the legislation. There are a number of specific tests in this regard.

1. A worker of the employer performs duties for a business carried on by the employer and the other entity – s.66 (1)(b);
   
   
2. A worker of the employer is employed solely or mainly to perform duties in connection with a business carried on by another entity - s.66 (1)(c); or
   
   
3. Where the employer has an agreement, arrangement or undertaking, whether formal or informal and whether expressed or implied, for a worker to perform work relating to a business carried on by the other entity - s.66 (1)(d).

Common Scenario
Administrative services company arrangements:

Commonly Controlled Businesses
A group will exist where the same person has, or the same persons together have, a controlling interest in each of two businesses.

Note: It’s the entities that are grouped – not the persons who have the controlling interests.

A controlling interest will be deemed to exist in a variety of circumstances and the question of what constitutes a controlling interest varies according to the type of entity which operates the business.

Control of Corporations – s66(3)(a) and (b)

• Where a business is conducted by a corporation, a person or persons together
  • Is able to instruct or influence a director or directors who can exercise a majority voting power at a directors’ meeting; or
  • Can exercise or influence the exercise of 50 per cent or more of the voting power attached to any class of issued voting shares of the corporation.

Example: John Smith holds 50% of the share capital in John Smith Pty Ltd and is therefore deemed to control John Smith Pty Ltd.

Control of Boards of Management - s66(3)©

• Where a business is conducted by either an incorporated or unincorporated body, a person or persons together:
  • Constitutes more than 50 per cent of the board of management of the corporate or unincorporated body carrying on that business: or
  • Can control the composition of the board.

Example: Directors of ABC Pty Ltd
John Citizen and Mary Citizen are the only two directors of ABC Pty Ltd. Therefore John and Mary together are deemed to have control.

Control of Partnerships – s66(3)(d)

• Where a business is conducted by a partnership, a person (or persons together), whether beneficially or not, owns 50 per cent or more of the capital of the partnership or is entitled to 50 per cent or more of the profits of the partnership.

Example: Smith Partners
Angela Smith owns 25% of capital and
Dale Smith owns 75% of capital

(1) Dale solely and (2) Dale and Angela jointly are deemed to have control of the partnership.

Control of Trusts – s66(3) and (4)

• Where a business is conducted by a trust, a person or persons together is a beneficiary of 50 per cent or more of the value of the interests in the trust.

Interests in a trust include entitlements to profits or capital distributions.

Note: any person who may benefit from a discretionary trust is deemed to be a beneficiary of 50 per cent or more of the value of the interests in the trust and therefore has a controlling interest in that trust. This includes a person who is still a discretionary object and who has not yet been appointed as a beneficiary of the trust

A controlling interest may also arise through interposing entities.

Indirect Relationship – Related Corps – s66(5)

• If corporations are related under section 50 of the Corporations Law, a corporation will be deemed to have a controlling interest in any business in which a related corporation has a controlling interest.

Example:

As Sarah Holder Pty Ltd and Secondco Pty Ltd are related, Sarah Holder Pty Ltd is deemed to have a controlling interest in the business in which Secondco Pty Ltd has a controlling interest (i.e. The Alternative Partnership). All 4 entities may be grouped under Section 66(5).

Other Indirect Control – s66(6)
If a person has a controlling interest in one business and the person who carries on that business has a controlling interest in another business, then that first person is also deemed to have a controlling interest in the second business.

Example:

Ian Vestor has a controlling interest in Business A. Company A, which carries on Business A has a controlling interest in Business B. Ian Vestor is therefore also deemed to have a controlling interest in Business B – via his controlling interest in Business A.

Dependence or Connection

By necessity, the grouping provisions are very broad in their application. In recognition of this, the Act gives WorkSafe Victoria the capacity to exclude a member from a group in certain circumstances.

This capacity does not enable a member of a group that is related under the Corporation’s Law to another member of the same group to be excluded from that group.

WorkSafe may exclude a member from a group if satisfied that the way in which a business is carried on by that member is independent of and not connected with the carrying on of any other group members’ business. What’s important is how the businesses are conducted.

Practical Considerations

Following are some of the practical issues WorkSafe will consider when determining whether or not to exercise the discretion

• Trade between businesses
• Sharing of resources between the businesses
• Common management between the businesses
• Common customers between the businesses
• Common financial arrangements between the businesses
• Extent of connection between business owners

Trade between the businesses - Are there transactions/trade between the businesses?

• What is the purpose of these transactions?
• What is the level of trade and/or transactions between the businesses?
• Are these transactions conducted on normal commercial terms or are discounts provided?

Sharing of resources between the businesses

• Do the businesses share resources, including premises, staff, management and accounting activities?
• If there is sharing of resources, is there any charge made?
• If there is a charge, is the charge reasonable given the type of resource shared and the level if such sharing?

Common customers between the businesses

• Is there a relationship between the customers of the businesses?
• Do the customers of one business automatically become the customers of the other business(es)?
• Do the businesses provide complementary services to their customers?
• Does one of the businesses add value to the goods or services provided by the other business?
  

Common Financial Arrangements

• Do the businesses have common financial arrangements?
• Have the businesses sought finance as a group, from a financial institution?
• Are there ‘cross-securities’ for such arrangements between the businesses?
• Are there loans between the businesses?
• If there are loans between the businesses, do written loan agreements exist?
• Is a reasonable rate of interest charged on the loans?

Extent of Connection between businesses

• Are the same people the owners of the businesses?
• Are the owners of the businesses closely related?

Amalgamation of Groups – s66(10)

Where two or more groups exist, and at least one member is common to each, those groups will, subject to WorkSafe’s discretion, be amalgamated and treated as one.

Example

These groups are treated as one under s66(10)
Note: Discretion applies under s66(11)

Group Amalgamations – VWA Discretion – s66(11)
A member of an amalgamated group may be excluded from that group if its business:

• Is independent and not connected with the carrying on of any other member’s business; and
• Is not carried on with an intention to avoid premium
  

Grouping of Joint Ventures
It is highly probable that, in the case of joint ventures, a group will exist between the joint venture entity and the joint venturers, on the basis of either the inter-use of employee provisions, or the common controlling interest provisions.

In line with the State Revenue Office ruling, WorkSafe has ruled that in cases where the joint venturers are not related under the grouping provisions, except by reason of their coming together as joint venturers, they will not be grouped.

Professional Practices’ Admin Businesses
Where a number of professional practices (e.g. doctors, accountants) share the services of a common administrative services group, WorkSafe will generally exercise the discretion not to group.

How Does Grouping Affect the Classification of Workplaces?

Premiums Order - Schedule 1, Item 2 (5)
This item deems certain workplaces of grouped employers to be one workplace for the purpose of determining the predominant activity and the relevant industry rate. (See Page 20 of the 2005/06 Premiums Order).

Under schedule 1, item 2(5), two or more employers must:

• Be members of a group within the meaning of section 66 of the Accident Compensation (WorkCover Insurance) Act 1993; and
• Operate at two or more workplaces which are neighbouring or contiguous or which consist of all or part of the same area of land; and
• Carry on dependent or connected operations at the workplace.
  

Dependence and connection must be evaluated at the workplace level for the purposes of item 2(5).

Applying item 2(5) – Example 1:

Employer Name	Address	WIC	Rate	Start Date
Biscuit Makers Ltd t/a Tasty Biscuits	100 Smith St, Moorabbin	C2163F – Biscuits Mfg	5.78%	1 Aug 1993
Biscuit Makers (Admin) Pty Ltd	100 Smith St, Moorabbin	I6369K – Business Services	1.26%	1 July 2002

• Biscuit Makers (Admin) Pty Ltd does not have a trading name, in fact it is not seen by the public.
• Biscuit Makers (Admin) Pty Ltd is a wholly owned subsidiary of Biscuit Makers Ltd., i.e. 100% ownership.
• Biscuit Makers (Admin) Pty Ltd employs all of the administration and sales staff for Tasty Biscuits.

Conclusion:
Biscuit Makers Ltd & Biscuit Makers (Admin) Pty Ltd form a “group” under section 66(1)(a).

• Item 2(5) is applicable.
• The WIC for both employers is C2163F – Biscuits Mfg