Compensation payable

Overview

Workers compensation legislation requires the insurer to commence provisional weekly payments of compensation within seven days after initial notification to the insurer of an injury, unless the insurer has a reasonable excuse for not commencing weekly payments.

In order to commence weekly payments of compensation, the insurer must calculate the worker’s pre-injury average weekly earnings (PIAWE). The calculation of the worker’s PIAWE is a work capacity decision under section 43(1)(d) of the Workers Compensation Act 1987 (1987 Act).

Pay information should be requested as soon as practicable from the employer to meet the legislated timeframe - see sections 267 and 275 of the Workplace Injury Management and Workers Compensation Act 1998 (1998 Act).

This guidance considers the calculation of PIAWE and the information insurers should request to determine PIAWE, such as pay information from employers.

Note: different rules apply to the calculation of weekly compensation for coal miners.

Definition of ‘pre-injury average weekly earnings’

Section 44C of the 1987 Act states that PIAWE consists of the following, expressed as a weekly sum:

1. the average of a worker’s ordinary earnings during the relevant period (excluding any week during which the worker did not actually work and was not on paid leave), and
2. any permissible shift and overtime amounts (but only for the calculation of weekly payments for the first 52 weeks, unless the injury is sustained on or after 26 October 2018. Workers with a date of injury after 26 October 2018 will not have their shift and overtime allowances removed after 52 weeks).

Ordinary earnings

A worker’s ordinary earnings (in respect of a week) is the total of:

• either their base rate of pay, or actual earnings
• any amounts paid or payable as piece rates or commissions, and
• the monetary value of non-pecuniary benefits.

Ordinary earnings do not include employer superannuation contributions.

Base rate of pay

In relation to PIAWE and current weekly earnings, a reference to a base rate of pay is a reference to the rate of pay payable to a worker for his/her ordinary hours of work, but does not include any of the following amounts:

• incentive based payments or bonuses
• loadings
• monetary allowances
• piece rates or commissions
• overtime or shift allowances
• any separately identifiable amount not listed here.

Allowances

To determine whether an allowance should be included in PIAWE, it is necessary to examine the worker’s applicable Fair Work instrument and payslips to understand how allowances are paid to the worker.

If it is clear that an allowance is not paid for the performance of shift work or overtime, then insurers should consider whether an allowance forms part of the worker’s base rate of pay. That is, could the allowance be a base rate of pay exclusion (in accordance with section 44G of the 1987 Act)?

An allowance will be included in a worker’s base rate of pay (and therefore ordinary earnings) if it is not an incentive-based payment or bonus, a loading, a ‘monetary allowance’ or ‘separately identifiable’ from their base rate of pay. The Fair Work instrument will help with making this decision.

A monetary allowance may be paid to a worker to compensate them for a number of different conditions or qualifications, or for doing certain work or having certain responsibilities.

Some items outlined in section 44G of the 1987 Act as base rate of pay exclusions (such as piece rates and commissions), already form part of a worker’s ordinary earnings, so are still included in a worker’s PIAWE.

The below flowchart summarises the approach to determine whether an allowance should be included in a worker's PIAWE.

In addition, overtime and shift allowances (also defined as base rate of pay exclusions) are included in a worker’s PIAWE (see sections 44C(1)(b) and 44G of the 1987 Act).

Actual earnings

If the worker’s rate of pay is not calculated on the basis of ordinary hours of work (as prescribed by a Fair Work instrument that applies to the worker), their actual earnings paid or payable in respect of that week are used.

Piece rates

Workers receiving piece rates are paid for each unit of production at a given rate, rather than receiving an hourly rate of pay for their work.

Commission

Workers who receive commission payments are paid based on completion of a task, or based on how much they sell. This may or may not be in addition to an hourly rate of pay.

Non-pecuniary benefits

Non-pecuniary or ‘non-cash’ benefits are earned by workers in the place of cash earnings. They can include education fees, residential accommodation, child care or a company car.

Salary sacrificed items can be non-pecuniary benefits providing the amounts sacrificed are not amounts included in section 44G of the 1987 Act. That is, if incentive-based payments, bonuses, loadings, monetary allowances, piece rates, commissions, overtime or shift allowances, or any other separately identifiable amounts, are dealt with by the employer on behalf of the worker in a salary sacrifice arrangement, they cannot be considered non-pecuniary benefits for the purposes of calculating PIAWE.

There are two different ways to calculate the value of a non-pecuniary benefit:

1. If fringe benefits tax applies

   The employer or the Australian Tax Office (ATO) can advise whether fringe benefits tax applies to a non-pecuniary benefit. The formula provided in section 44F(5) of the 1987 Act is used to calculate the value of the non-pecuniary benefit.

   The taxable value required in that formula should be obtained from the employer. The fringe benefits tax rate is available from the ATO and is the rate applicable when the non-pecuniary benefit was provided to the worker.

2. If it is exempt from fringe benefits tax

   If an item is exempt from fringe benefits tax, the amount reasonably payable for that non-pecuniary benefit must be used. In most cases, this amount can be obtained from the employer, as the employer is required to keep these records. Where this information cannot be obtained from the employer, the insurer will need to determine the amount with reference to other reliable sources. For example, the Rent and Sales Report produced by the NSW Department of Family and Community Services can be used as a guide for the reasonable rental amount that is payable for residential accommodation that is not subject to fringe benefits tax.

Shift and overtime payments

If a worker performed overtime and/or shift work during the relevant period, and would likely have continued to perform such work during the 52-week period after the date of injury/illness, shift and overtime allowances may be included in the calculation of PIAWE.

Current weekly earnings

Current weekly earnings in relation to a week are the worker’s earnings for ordinary hours worked, amounts paid/payable for shift, overtime, piece rates and commissions in respect of that week, providing the base rate of pay is calculated on the basis of ordinary hours worked.

In any other case, current weekly earnings refer to the worker’s actual earnings in respect of that week, not including any incentive- based payments or bonuses, loadings, monetary allowances or other separately identifiable amounts.

Determining the ‘relevant period’

The ‘relevant period’ is the number of weeks over which PIAWE is calculated. The 'relevant period' is defined in section 44D of the 1987 Act:

• the period of 52 weeks immediately before the date of injury/illness for workers who have been continuously employed with the same employer during that time, or
• the period of continuous employment immediately before the injury/illness for workers who have been continuously employed with the same employer for less than 52 weeks.

The impact of leave during the relevant period

The relevant period for calculating ordinary earnings includes all periods of paid leave, but does not include periods of unpaid leave.

The relevant period for calculating shift and overtime amounts includes all periods of paid annual leave only and does not include periods of unpaid and other paid leave.

The relevant period can be affected by several exceptions, see below.

Changes during the 52-week relevant period

If the worker alters their ordinary hours of work, or the nature of the work they perform during the 52 weeks immediately before the injury and it reduces their ordinary earnings, only the period after this reduction is considered when calculating the relevant period. This change must be voluntary, and not related to any incapacity due to the injury for which they are claiming compensation.

Alternatively, if the worker was promoted or appointed to a different position during the 52 weeks immediately before the injury, and as a result their ordinary earnings are increased, only the period from the date of injury back to the date the promotion or new appointment takes effect is considered when calculating the relevant period. In this situation, the promotion or appointment must be a permanent arrangement.

Should a worker have performed an acting (temporary) role during the relevant period, even if that acting role would have continued had the worker not been injured, the arrangement would not have the effect of altering the relevant period.

If a worker was continuously employed by the same employer, but performed temporary roles (other than their usual role) within the relevant period, all earnings would be averaged over the relevant period.

Exceptions to the relevant period

Continuously employed for less than four weeks

If a worker had been employed with the same employer for less than four weeks before the injury, that period may be used as the relevant period to determine PIAWE.

Alternatively, an insurer may use the average of the worker’s ordinary earnings and permissible shift and overtime amounts* which the worker could reasonably expect to have earned during the 52 weeks after the injury (expressed as a weekly sum). This method should be used if using the four-week pre-injury period would disadvantage the worker.

* Shift and overtime amounts are not included in PIAWE after 52 entitlement weeks for workers with a date of injury before 26 October 2018.

When 78 weeks is the relevant period

The 78-week period immediately before the injury may be used as the relevant period when a worker:

• was not a full-time worker immediately before the injury, and
• was seeking full time employment at the time of the injury, and
• can demonstrate that they were predominantly a full-time worker during the 78 weeks immediately before the injury.

In this instance, PIAWE is calculated using the average of the worker’s ordinary earnings and any permissible shift and overtime amounts** for the 78-week period prior to the date of injury (expressed as a weekly sum).

Only those weeks where the worker was working are to be included in the calculation whether in a full-time, part-time or casual capacity. This includes all employment, regardless of whether it is with the same employer at the time of the injury.

** Shift and overtime amounts are not included in PIAWE after 52 entitlement weeks for workers with a date of injury before 26 October 2018.

Promotion to take effect after the injury

If during the 52 weeks immediately before the injury, a worker received written advice from their employer of a permanent promotion or appointment to a different position, which would result in an increase in ordinary earnings, but the promotion had not yet taken effect, PIAWE is calculated on the average of the earnings the worker could have reasonably expected to earn, as if the promotion or appointment had taken effect 52 weeks before the injury. This amount would be expressed as a weekly sum.

Gathering information for the PIAWE calculation

The insurer needs to gather as much information as possible to calculate the correct entitlement for the worker. This may include:

• a completed PIAWE form
• copies of payslips or any available payroll records covering the relevant period
• any relevant Fair Work instrument, contract of employment or enterprise bargaining agreement
• leave records
• tax returns
• any other supporting documentation specific to a worker’s employment circumstances.

If the worker has more than one job at the time of injury, the above information (where relevant) should be gathered for the employment with all employers.

Interim PIAWE

Insurers should request pay information from employers as soon as possible in order to be able to meet their obligation to commence weekly payments within seven days from notification unless a reasonable excuse applies (section 267 of the 1998 Act).

This information may be requested from the employer during initial contact. When requesting the information, the insurer may need to inform the employer of their obligation under section 264(2) of the 1998 Act, which requires employers to provide information to insurers within seven days of the insurer’s request.

A worker’s weekly payments should not be delayed because an insurer has insufficient information to determine the correct PIAWE.

If an insurer determines that there is likely to be a delay in receiving all information required to calculate PIAWE to commence weekly payments within seven days of notification, they should request whatever supporting information they can from the worker to inform an interim PIAWE calculation.

The amount of the interim PIAWE and how that amount was determined must be communicated to the worker by way of a work capacity decision (section 43(1)(d) of the 1987 Act).

The worker should be informed that the PIAWE is an interim amount until sufficient information is provided to enable a correct PIAWE to be determined. The insurer should also advise the worker that an adjustment payment may be payable if PIAWE is later determined to be higher than the interim amount.

The insurer must continue to engage with the employer to obtain the missing information to determine the worker’s correct PIAWE. Where there is an interim PIAWE, and the employer does not respond to insurer requests for information, the insurer should contact SIRA on 13 10 50 to determine whether further action is required.

Determining the correct PIAWE

Once an insurer has the necessary information to determine the correct PIAWE, they must calculate the new PIAWE and apply the new rate as soon as possible.

If the actual PIAWE amount is higher than the interim PIAWE, the insurer should apply the following formula to determine the amount owing to the worker:

All future weekly payments must be based on the new PIAWE (unless it is later determined to be different when subject to a review of the work capacity decision).

Workers under 21 years of age, apprentices and trainees

Some workers are entitled to incremental earning increases at certain ages or stages during their employment. This includes:

• workers under the age of 21
• apprentices, or
• trainees for the purposes of becoming qualified to carry on an occupation.

For these workers, PIAWE is to be recalculated at each age or stage in accordance with what they would have been entitled to receive, had they not become injured and continued in that employment.

If there is no rate applicable to a worker who has reached the age of 21 years, the worker is entitled to receive the maximum weekly compensation amount (section 34 of the 1987 Act).

Minimum PIAWE

The minimum PIAWE is $155 and is set by Clause 6 of the Workers Compensation Regulation 2016 (2016 Regulation). This amount is not indexed.

If a worker’s PIAWE is calculated to be lower than the minimum PIAWE ($155), then the minimum PIAWE is to be set as the worker’s PIAWE (section 44C(7) of the 1987 Act).

Concurrent employment (more than one employer)

Special consideration is given to workers employed by more than one employer at the time of injury.

Items 2 to 8 of Schedule 3 of the 1987 Act set out the method to determine PIAWE where a worker was employed by more than one employer at the time of injury.

The prescribed method used to calculate the worker’s PIAWE should be clearly explained to the worker.

For those items below relating to concurrent employment, the PIAWE calculation is made in accordance Division 2 of Part 3 of the 1987 Act (as above), except for item 8.

The method to calculate PIAWE is outlined below:

Each item below presumes two or more employers

The following terms used in the table above have been defined as follows:

Fair work instrument (FWi): A document that covers worker conditions of employment at work.

Ordinary hours: The hours (in relation to a week) as agreed between the worker and the employer. These hours may or may not be determined within the worker’s Fair Work instrument. If the hours per week are not agreed or determined, the ordinary hours are the worker’s average weekly hours during the relevant period (excluding those weeks they did not work or were not on paid leave). See section 44H of the 1987 Act.

Ordinary earnings: The total of either the base rate of pay or actual earnings + any amounts paid or payable as piece rates or commissions + the monetary value of non-pecuniary benefits in respect of a week (section 44E of the 1987 Act).

Prescribed number of hours: 38 hours per week in accordance with Clause 7 of the 2016 Regulation.

Self-employment and working directors

PIAWE for self employed workers and working directors is calculated as it would be for all eligible workers. However, the types of evidence gathered may be different based on the worker’s earning circumstances. Business activity statements reflect business activity only and are therefore not useful, and payslips are generally not available. Useful information may include:

• pay as you go (PAYG) summaries
• group certificates/tax returns
• bank statements.

Indexation of PIAWE

Indexation of a worker’s PIAWE is considered on 1 April and 1 October each year.

Refer to Insurer guidance GN 5.13 Indexation for more information on how indexation is calculated for weekly payments, including additional requirements for workers injured between 1 October 2012 and 21 October 2019, and considerations for workers injured before 1 October 2012.