The economic climate has led to redundancies across the technology sector as companies reduce their costs to try to extend their runways.

One of the unintended consequences of this is the impact on workers’ compensation which drives business costs up even further.

So what are the implications for organisations and how they can lead through this period?

Q: What is the connection between laying a person off and workers’ compensation?

There are a number of ways in which this plays out. Some of which are obvious and others not so obvious. For a person already on workers’ compensation, the loss of their employment through a redundancy has significant implications for them. Their ability to return to work will be reduced and they will need to find another role elsewhere which may not be suitable to their rehab requirements. The financial implications of this are huge for the business.

When an employer cannot return an injured person to work, they will be paid as if totally incapacitated and unable to work at all.

If an employee feels disengaged or disgruntled about the redundancy process, they may subsequently lodge a claim for compensation either for a previous injury or perhaps a bullying or discrimination claim. Once an employee is no longer employed by a business, the nexus of control shifts to the insurer and there is little the former employer can do to shift the outcome of this.

It is important to remember that redundancy in no way reduces the workers’ compensation risk. In fact, often it has the opposite effect. The onus of proof always falls with the employer to prove an injury did not occur and this is not always easy, particularly if dealing with a mental health claim.

Q: What are the implications of these claims?

The implications are significant for all parties and we have touched previously on those for the injured worker. From an employer perspective, we see spiraling premium costs and the impact will differ for State to State depending on the premium formulae.

For example:

• NSW premium is driven by the cost of wages paid. The formula in NSW has an inflation cost in order to cover the cost of the whole claim and we are seeing in some instances that for every $1 of lost wages paid on the claim, this equates to five times that dollar cost in premium terms. Consider that on an average salary of $60,000 – that equates to $300,000 in premium – and that is just one claim!

• Victoria has a statistical estimating model which will always estimate the worst case scenario and this cost impact increases the longer a person is absent form work and is very slow to decrease. The premium impact of this is profound.

• Other states i.e. WA use a risk rating method set by the insurance underwriters and they will look at your current and historical claims history to set a rate for your premium costs.

• Claims costs count for multiple years in a premium calculation i.e. NSW (three years) so you pay not only once but three times for that claim.

Q: How can businesses protect themselves or mitigate the risks of expensive claims?

Well it is the role that is made redundant, not the individual, so it will not always be possible to reduce the risk of claims costs entirely. The risk can be mitigated by planning and at Lockton we have a fairly straightforward roadmap to manage this:

1. When considering a redundancy, organisations can engage insurance and risk advisors like Lockton who can:

a. Provide premium impact analyses to help you understand the impact of making people redundant with open workers' compensation claims.

b. Consider if staff impacted have had a previous workers’ compensation claim and if there is any future risk.

c. Engage with your insurer to consider the strategy on each claim. How can we support the injured person who is going to be made redundant? What redeployment opportunities are there? What support needs to be put in place to help them e.g. external rehabilitation.

d. Create a communication plan specific to injured workers to help them understand next steps and what this means for them and their claim.

2. It is important to consider your wider planning to reduce the cost of claims being received after a redundancy has occurred.

Q: The ultimate dichotomy of this current situation is that many industries are crying out for tech staff. What’s the solution here?

1. Outsource to professionals and offer services that can make finding part-time or alternate employment possible. This makes the transition smoother when employees know they will have a source of income.

2. Consider the implications of regrettable turnover. Remaining staff are watching this process and if they become disengaged or believe the process to be unfair they may leave and go elsewhere. There is no point in forcing a redundancy and then have to re-employ or contact the person back to fulfill the role.

3. Make sure you follow your HR guidelines to ensure a safe and robust process. This will reduce the ability of staff to lodge claims subsequently for unfair treatment.