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Regulation of pre-injury average weekly earnings – submissions summary

Introduction

In February 2016, the State Insurance Regulatory Authority (SIRA) called for stakeholder comment in response to the Regulation of pre-injury average weekly earnings (PIAWE) discussion paper.

Twenty-one submissions, including four confidential submissions, were received during the public consultation period. This paper provides a high level summary of the key themes articulated in those submissions. All non-confidential submissions are now also available on the SIRA website.

Vary the method by which pre-injury average weekly earnings are calculated

There was strong support from stakeholders for a Regulation to provide a simplified methodology for the calculation of PIAWE. Commonly expressed was the view that the current methodology was unnecessarily complex, and simplification was required to provide a fair and efficient system. A key driver for change was the associated administrative cost in the calculation process. Contrary to this view, a limited number of submissions felt the current system was reasonable with no required changes. A common theme expressed in those submissions, was that the PIAWE calculation process is necessarily complex, because it reflects the complex pay and conditions that are inherent in modern industrial arrangements.

A range of alternative calculation methodologies were proposed. A common theme identified was the need to provide a simple and concise definition of PIAWE, which was easy to understand and apply. A number of submissions referred to, and relied upon, the inquiry established by the Workers Compensation Independent Review Office, the ‘Parkes Project’, and the principles and recommendations developed specifically in relation to PIAWE.

A key theme in the submissions was that PIAWE should accurately represent the value of a worker’s pre-injury earnings, inclusive of shift allowances and overtime payments. Numerous submissions supported a simplified definition to be expressed as the average of a worker’s pre-injury earnings during the 52 week period prior to their injury, or where a worker has not been employed for 52 weeks, the period of continuous service prior to injury.

Alternatively, it was also proposed that the Regulation should provide a single definition of the relevant period expressed as a number of weeks, with all paid leave to be included in determining the relevant period for calculation of ordinary earnings, and shift and overtime. It was felt that including or excluding different weeks from the relevant period was both complex and time consuming, and that employer payroll records did not necessarily distinguish leave types.

There was some support for amending the relevant period to a period less than 52 weeks, such as 12 weeks, or alternatively a period relevant to the worker’s employment. It was suggested this would be easier from an administrative perspective and result in a fairer outcome, particularly for workers employed on a casual, seasonal or self-employed basis.

It was raised that a clear definition of a week was required to ensure consistent understanding and application. It was suggested that the week should be aligned to the worker’s payroll cycle. It was raised that this was a significant issue as the misalignment of payroll week and compensation week potentially results in delayed payments, incorrect payments to workers and/or additional payroll costs.

The removal of shift allowance and overtime amounts from 53 weeks onwards was also a central theme in the submissions. It was felt this resulted in unfair outcomes for some workers, who experience significant reductions in the amount of weekly compensation. Further, it was suggested that the removal of shift and overtime payments from 53 weeks did not operate to incentivise or promote return to work.

Schedule 3 to the Workers Compensation Act 1987 (the Act) relates to specific classes of workers and workers employed by two or more employers.  It was raised in a number of submissions, noting that it resulted in unfair outcomes for workers employed by more than one employer. It was felt that Schedule 3 is complex and unfair in application and should be amended, particularly where it deals with more than one employer.

It was suggested that there be less reliance on Fair Work Instruments in the calculation of PIAWE. A number of submissions noted that determining whether there is a Fair Work Instrument is a complex process. It was also noted that insurers were required to apply industrial concepts without the required level of industrial expertise.

The difficulty in determining the earnings of certain categories of workers, such as self-employed workers or seasonal workers, was also highlighted. This was either due to the lack of payroll records, or the seasonal nature of the work. The suggestion was made that a rate be prescribed, or a set rate applied as an item in Schedule 3. It was also raised that any weeks not worked by casual workers should be included in the relevant period, on the basis that they are paid higher hourly rates due to the sporadic nature of their employment.

Non-pecuniary benefits

There were opposing views as to whether additional categories of non-pecuniary benefits were required. One view identified that only a small number of workers have a PIAWE that involves non- pecuniary benefits. Therefore, there was limited support for increasing the categories of non-pecuniary benefits in a Regulation.

There was support for the Regulation to more clearly identify the value of non-pecuniary benefits that should be included. For instance, some confusion had been observed in relation to the use of a motor vehicle, as the use of a motor vehicle provided by an employer can be varied.

A number of submissions suggested that reference to the fringe benefits tax be removed, as this creates confusion and is complex to determine. Alternatives included the use of a reasonably payable amount, or for rates for non-pecuniary benefits to be prescribed.

An alternative view suggested that all benefits or class of benefits that are to be included as non-pecuniary benefit should be prescribed to provide consistency and certainty. Suggestions for inclusion included salary sacrifice amounts, as well as goods and services, including IT equipment.

Base rate of pay

There were varied views in relation to base rate of pay, with one view advocating for the removal of base rate of pay exclusions. It was submitted that determining base rate of pay exclusions was a complex process, and the removal of items from a base rate of pay could result in unfair outcomes. There was support for a simplified ordinary earnings calculation that is inclusive of a base rate of pay, piece rates, shift and other allowances directly related to performance of the job, and overtime.

Alternatively, it was suggested that all benefits or class of benefits to be excluded from a base rate of pay should be prescribed. Clarity is required as to which allowances should be included or excluded. A number of references were made to the WorkSafe Victorian Online Claims Manual which attempts to clarify which allowances should be included, and those which should be excluded. It was further suggested that consultation would be required with industry unions and employer associations to assist in understanding the purpose of differing allowances.

Operational and administrative considerations

Key operational and administrative considerations when designing a new PIAWE Regulation include the need to ensure simplicity and a streamlined process. The Regulation should be easy to understand, consistently applied, and support the focus of case management activities such as rehabilitation and return to work.

A number of concerns were raised in relation to the time involved to obtain the required information and determine PIAWE. Further difficulties arise given that a decision about the amount of an injured worker’s PIAWE is a work capacity decision, and that weekly payments are to commence from the acceptance of provisional liability.

Several submissions identified the need for a PIAWE ‘default’ or ‘interim’ rate that could be used when PIAWE information was not available to ensure initial wage payments were not delayed. Additionally, an extended timeframe was proposed to determine PIAWE as a work capacity decision when the default or interim rate has been applied.

Other important considerations include the importance of sharing information with workers and providing greater opportunity for them to be involved in the calculation of PIAWE. Also highlighted was the need to provide supporting documentation and education material.

Innovation

Alternative ideas and suggestions that were put forward included:

  • an online portal or PIAWE calculator to assist with automated PIAWE calculations
  • revision to the PIAWE form, with suggestions indicating the form should be streamlined to facilitate ease of completion
  • accountability for the provision of accurate information
  • a mandated process for insurers to determine PIAWE
  • seeking advice from relevant employer associations to assist in the interpretation of industrial instruments
  • establishing working parties to formulate agreed positions on how the provisions of each Award would fit into the legislative framework.

Other themes

Although out of the primary scope of the consultation, a number of other themes were identified. This included suggestions to vary entitlements, such as increasing a worker’s entitlement to 100 per cent of PIAWE in the first entitlement period. Further, rather than removing shift and overtime from week 53 onwards, it was proposed that additional step-downs be introduced with the intention to incentivise return to work.

A suggestion was made that eligibility for a worker to access 95 per cent of PIAWE during and after the second entitlement period should be reviewed. Currently, the requirement is to work more than 15 hours per week, which can operate to penalise those workers who work on a part time basis.

A number of submissions expressed the view that PIAWE should be removed from the definition of a work capacity decision and excluded from the work capacity review process.

Other submissions indicated that a work capacity decision relating to PIAWE should not be made within the provisional liability period, or alternatively the work capacity decision should be extended to four weeks from the notification of the claim. This would allow additional time to facilitate robust PIAWE determinations and minimise the potential for reviews. It was further suggested that the PIAWE determination process should be rationalised to enable workers to receive adjustment payments where they may have been underpaid.

A common theme was the need for an accessible and efficient dispute resolution system to deal with disagreements in relation to PIAWE. Parties should be able to agree on the PIAWE amount, rather than the insurer being the sole decision maker.

Further, a number of stakeholders were of the opinion that the jurisdiction to deal with PIAWE disputes should sit with the Workers Compensation Commission. Alternatively, suggestions were to improve the current review process including the development of PIAWE-specific internal review and merit review forms.

Next steps

The information provided through this public consultation will be used to develop detailed regulatory options for consideration by Government, with the view to finalising regulatory improvements for the Government’s consideration by mid-2016.

SIRA will continue to consult and engage with stakeholders throughout the development and implementation phases.

Any questions or enquiries in relation to this submissions summary or the proposed PIAWE Regulation should be emailed to 2015benefitsreform@sira.nsw.gov.au.