Workplace Classification

Effective July 2002, rules for workplace industry classifications were applied. The rules limited the circumstances in which an employer’s workplace could be ‘split’, and in addition applied an existing law that enabled separate legal entities to be grouped together for classification purposes. Workplaces classified under the prevailing rules prior to 4 June 2002 were allowed to maintain their current structures.

Frequently Asked Questions

• What is meant by the splitting of workplaces and how do the changes announced affect me?
  
• Why doesn't the classification system reflect the risks of the occupations being undertaken? My admin staff don't have the same risk of injury as the people working in production?
• What is predominant activity and how is it decided?
  
• Will my premium increase as a result of these changes?
  
• Why is WorkSafe starting to group legal entities?
  
• What is grouping and how does it work?
  
• When is the grouping of legal entities going to commence?
  
• How will grouping affect my business?
  
• Will premium be calculated for the group as a whole, or just for individual members?

 

What is meant by the splitting of workplaces and how do the changes announced affect me?
Most employers, around 95% in the WorkSafe scheme, only have one workplace so the change will have no effect on them.

A small number of employers have more than one workplace, for a range of reasons. However, some of these employers split their workplaces on the same site or divided them into separate legal entities, to reduce their premium. For example, they may have split off their manufacturing staff from their sales staff for premium purposes, even though they are located at the same workplace and the activities undertaken are related.

The WorkSafe scheme is funded by contributions from all employers. This means that if one employer avoids premium, these funds must be recouped from other employers to adequately fund the scheme. This is unfair.

The Minister for WorkSafe announced earlier this year that the moratorium on the splitting of workplaces will be lifted from 1st July 2004. This means that now all employers which had artificially split their workplaces will be classified according to the predominant activity of the whole workplace for premium purposes. Notice of this change has been given to allow employers time to adjust to the changes, and focus on their health and safety performance as the way to reduce their premium.

Where the activities undertaken at a workplace are significantly different in nature and not integral to, or dependant on each other, these activities can still be classified separately.

Why doesn't the classification system reflect the risks of the occupations being undertaken? My admin staff don't have the same risk of injury as the people working in production?
Like most workers' compensation systems, the WorkSafe scheme is based on the major activity of the workplace, not the occupations of individual workers. That is, if the predominant activity of a workplace is car manufacturing, all workers will be classified to this industry classification - even sales staff.

An occupation based system would change premium rates. For example, if an employer is currently paying 8% for all its staff, under an occupation based system it could be paying 2% for its administration staff, but 15% for its production staff.

To classify according to occupation would involve a high administrative workload for both WorkSafe and employers. It would also require increased compliance activity and auditing of employers, which adds extra costs to the scheme.

However, it must also be remembered that classification is just one step in the process of premium calculation. An employer's own experience is also taken into account.

What is predominant activity and how is it decided?
Your WorkSafe agent gives each of your workplaces an industry classification based on the predominant activity carried out at each workplace. This means the activity which most contributes to the value of goods or services that each of your workplaces produces or provides.

To work out the predominant activity at each workplace, your agent uses information that you gave on your policy application form. Your agent takes into account a number of factors, including:

• the main type of goods produced or services provided by your workplace; and
• how these goods or services are produced or provided; and
• who receives these goods or services.

Having worked out the predominant activity at your workplace, your agent then selects the appropriate industry classification from the Premiums Order which most closely corresponds to your predominant activity.

Will my premium increase as a result of these changes?
Employers that have split their workplaces or utilised separate legal entities for workplaces may find their premium increases due to these changes. However, any changes in premium will be limited by capping - we plan to continue a capping system under the proposed new premium system. WorkSafe has given notice of this change to enable employers to focus on their health and safety and return to work performance as the way to reduce their premium.

Why is WorkSafe starting to group legal entities?
As part of the Premium Review conducted in 2001, employers told us that they didn't believe the premium system was fair for all. We have taken this feedback on board and plan to utilise the grouping powers to ensure that some employers can't establish complex legal structures as a way to avoid premium responsibility.

WorkSafe is collapsing many split workplaces so they are classified according to the predominant activity of the business. We need to utilise the grouping provisions to support the changes to the splitting rules to ensure they are not rendered ineffective by the use of separate legal entities.

It must be remembered that the premium system is closed - all employers contribute through the premium they pay. If some employers avoid premium through the use of complex legal or workplace structures, others must pay more premium to fund the scheme.

What is grouping and how does it work?
WorkSafe groups different employers to treat them as one for certain purposes within the premium system. To do this, we look for common elements within each employer to determine whether it should be grouped with other employers. Some of the factors used to determine whether an employer is a member of a group are:

• Whether the Corporations Law considers the employer to be related to another corporation;
• Whether the directors of an employer are obliged to act in accordance with the directions of the other employer or another person (or vice versa);
• If the directors of a company can exercise more than 50 per cent of the voting rights in the other company (or vice versa); and
• Whether workers employed by one employer provide services for another employer.

When is the grouping of legal entities going to commence?
WorkSafe has had the power to group employers since 1985, and has been utilising this power to ensure that the exemption for apprentice remuneration is being used correctly and that workplaces registered after 4 June 2002 are classified accurately. We will be expanding the use of grouping from 1 July 2004 to ensure that all employers that are members of groups have their workplaces classified correctly.

How will grouping affect my business?br> Because most businesses do not operate through several legal entities, they will not be affected by grouping. For employers that are affected, it should be noted that grouping will only be used to determine the correct classification at contiguous or neighbouring workplaces and workplaces occupying the same areas.

Will premium be calculated for the group as a whole, or just for individual members?
WorkSafe will continue to individually calculate the premium of each member of a group.