Workers compensation changes: VIC employees and employers set to pay for “broken” system

When it comes to the government managed fund states, workers’ compensation outcomes are not only influenced by insurance factors, but by political factors.

And in March 2023, the Victoria Government declared their WorkCover scheme was fundamentally broken. (opens a new window)

It is likely that all stakeholders will end up paying a price for this, but information released on 19 May 2023 (opens a new window) begins to show just how much employers stand to pay, placing increasing pressure on the bottom-line with significant costs which may not have been budgeted for.

It was announced the average scheme rate will increase from 1.272% to 1.8%, a nearly 42% increase in the underlying cost of workers’ compensation in Victoria.

At the moment, what is not yet detailed is any changes to the many other levers that WorkSafe have to alter premium outcomes, including the capping of premiums that mean many employers will have increases well above the headline increase.

On top of the immediate premium increases, the government also announced intended changes to legislation to limit access and benefits for mental Injury claims as well as limiting access to ongoing compensation for injured workers whose claims have lasted over two and a half years. It is intended to introduce legislation later this year to take effect from 2024.

For example, workers who experience stress and burnout will no longer be able to access weekly benefits from WorkCover – instead, they will be eligible for provisional payments for 13 weeks to cover medical treatment, while enhanced psychosocial support will be provided to help them return to work or explore training pathways.

Diagnosis may shift, impacting overall business costs

In our view, with stress and burnout no longer being covered in Victoria, there is now a risk that doctors who could previously issue workers’ compensation certificates for injured/ill employees experiencing conditions such as burnout, may now look to diagnose in other areas, for example anxiety (which is eligible for a workers’ compensation claim).

We often hear feedback that at times, doctors are unsure on what to write on a medical certificate when they are initially assessing a worker for the first time and will base the diagnosis on the worker’s view as opposed to the doctor’s assessment. We believe there could be a risk that there will be other avenues which employees and doctors will explore beyond burnout which will impact overall business costs.

Implications for employers

On the face of it, the removal of mental health claims from work related stress/burnout may save the WorkCover Scheme money, but these ‘savings’ might end be being paid elsewhere, both in the public health system as well as other corporate insurances.

For example, this could lead to a situation whereby an employee lodges a stress claim under their company’s Group Personal Accident (GPA) Policy (as opposed to workers’ compensation which will no longer accept burnout as a condition), potentially citing that their stress diagnosis was formed through their life outside of work. This potentially could lead to increased claims liabilities and premium costs for employers who provide GPA products for their employees.

As another example, this could also happen with a workers’ compensation claim and an employment practice liability claim as the two insurances are often blurred. Employment practices liability insurance also has the potential to cover claims against an employer arising from mental health, work related stress and emotional distress. Notification under multiple policies is not always considered.

What this means for boards and directors

Given the WHS legislation has changed to enshrine mentally healthy workplaces into legislation, this latest news is an interesting disconnect between an employer’s safety obligation and then its obligation to support employees who are found to have been injured out of or in the course of their employment.

The implications of a serious breach of WHS law has direct implications for boards and directors. These updates may lead to increases in employment practices liabilities for organisations which will have a flow on to Directors and Officers (D&O) Insurance.

Implications for employees

We may see a reluctance by employees wishing to lodge a WorkCover claim because of increased fear of job security and the cost impact on their employers. Additionally, we predict some employers will now look to offer to pay for medical expenses on the employee’s behalf, instead of lodging a WorkCover claim. 

We also know that any delay in lodging a claim makes it harder to manage an injury from an early intervention/treatment perspective.

Establishment of Return to Work Victoria

It was also announced that the government is establishing Return to Work Victoria to pilot prevention, early intervention and return to work programs with the core purpose of preventing injuries in the first place and to help workers get back to work as early and as safely as possible.

Right now, employers in Victoria are limited in the actions that they can take to reduce the impact of these premium increases for the 2023/2024 year.

However, what we can suggest employers do is:

  • Build excellent Work Health Safety and injury management practices and procedures into their business. Whilst that will not have an impact on the forthcoming policy period, the best thing employers can do is to prevent injury and assist their injured workers. Such actions will have long lasting benefits for employees and employers.

  • Focus on early, proactive and sustainable return to work with clear return to work goals to support injured workers in their recovery.

  • Review the workplace industry classifications for all registered sites to ensure that they are appropriate and whether there is the opportunity to reduce the industry rates being applied.

  • Ensure that the wages being declared are in line with the requirements and that wages are not being overdeclared.

  • Conduct a Feasibility Study to determine whether the conventional scheme or Self-Insurance will deliver the best outcomes for your workforce and your business.

This news will be difficult for employees and employers in Victoria to digest, with increases directly impacting budgets and undoubtedly causing hardship to many employers, which may have impacts on employment in the state.

Whilst the full extent and impact of price increases is yet to unfold, businesses who take proactive action will be rewarded. Reviewing and exploring all options with specialist workers’ compensation advisors will be key to getting the best possible outcomes.