While workers compensation can seem like a bugbear for employers, it’s important to ensure that your records are kept up to date and accurate, and your “Actual Declaration of Wages” lodged. An audit we assisted with recently highlighted the importance of this.
Why was the client chosen for audit?
Because they failed to lodge their 2009 Actual Wages Declaration.
Which years were audited?
2008, 2009, 2010 and 2011.
(one unlodged document meant four years were audited).
What was the outcome of the audit?
– Contractors were under-declared by a significant amount.
– Client records were poor.
– Line items in the expenses ledger often referred to a person’s first name and his role e.g. “Greg Painter”. These were imported from the clients banking records. Matching these strange names to contractor’s business names was near impossible and resulted in a number of tranactions being “taxed” because there was no invoice available to match the claim.
– At one point in the audit we were looking at $360,000 of under-declared “wages” paid to contractors. Only after supplying contractors business names and ABN’s were we able to get these figures down to $190,000, which represented an additional workers compensation charge of $55,000 in tax and penalties.
– ‘ABN only’ contractors were deemed “employees” unless we could prove otherwise.
Correct Business Description?
Our audit produced a silver lining; our client scrutinised the Actual Wages Declaration and noticed they were being rated incorrectly. After successful application, they were able to have the workers compensation charge significantly reduced, because the rate applicable to the correct activity was 3% less than the description on file.
The fees for us to handle this audit amounted to $7800. Our client had applied for audit insurance five days after the initiation by the auditor. Clearly the insurer refused the claim.
- Workers comp is here to stay so pay attention to the lodgement requirements, and your actual business status on the form.
- Pay attention to your contractor’s situation. If they are ABN only, question critically whether you should be covering them for workers compensation.
- Keep good records and ensure that contractor invoices correctly describe activity and do not mention hourly rates unless you accept that the contractor should be deemed an employee.
- If you are employing people, carefully consider audit insurance.
For more information regarding this case study, or information about how audit insurance can help protect you, please visit our audit insurance web page, email David Howells, or call David on 02 4455 5333.
Follow this link to Workcover Authority NSW’s webpage for detailed information about Workers Compensation rules.