3.1.4.4 Entitlements for self-employed persons

Note: For current weekly earnings from self-employment, refer to 3.5.3 Current Weekly Earnings.

There is distinction between persons who:

• are self-employed
• work for an incorporated company An incorporated company is recognised at law as a separate legal entity from its owners or shareholders. It is treated the same as a natural person and is therefore able to employ people directly and is recognised at law as the employer. An incorporated company usually has 'Limited' (Ltd) or 'Propriety Limited' (Pty Ltd) as part of its business name. they also own and control.

An incorporated company is a separate legal entity from its owners or shareholders. It is treated the same as a natural person and is therefore able to employ people directly as the employer.

A company director can therefore be treated as a worker if a contact of service exists between them and the company. See 2.1.1.2 Contract of service.

An unincorporated business is not recognised as a separate legal entity at law.

Owners or stakeholders in unincorporated businesses are referred to as the proprietors or partners. If the proprietor of partner of the business works in the business, they will be treated as self-employed. This means that they are not working under a contract of service as a worker and therefore have no entitlement under the worker's compensation legislation. The exception to this is when a person is deemed to be a worker.

Determining the legal status of the employer

When an Agent receives a claim from a worker who is also the employer, they must determine the legal status of the employer, that is, whether the employer is a sole proprietor, partnership or company incorporated under the Corporations Law. See also 2.1.1 Define a worker.

Directors

The persons charged with the management of an incorporated company are its directors. The duties and powers of the directors are governed by the rules that apply to the company’s internal management, including the company’s constitution and by the provisions in the Corporations Act 2001 (Cth).

Company directors do not ‘own’ a company, company shareholders do. However, often in small family companies, the directors can own all the shares in the company.

There are two types of directors:

Executive directors

• are directors who have some role in managing the company, for example: chief executive officer
• may be engaged under a contract of service or a contract for service, in addition to being appointed as a director of the company.

In these cases, the director would be considered a worker under the legislation.

Non-executive directors

• are directors who are generally independent of the company and have no direct management responsibilities, other than those as a director
• commonly only attend board meetings or provide ad hoc consultancy advice and are only paid a director's fee for their services
• are not workers as they are not employed under a contract of service or contract for service.

If injured, a company director’s PIAWE is determined by the amount of wages and salary received from their employer, that is, the corporation. However, this does not include the amount the director receives as directors’ fees or company dividends.

If a company director does not receive a salary or wage from the corporation they are employed by they are not entitled to weekly payments, even though they may be deemed to be a worker.

In such cases, the director would still be entitled to the payment of other WorkCover entitlements, for example, the reasonable cost of medical and like services.

Where there is no evidence available as to the wages or salary received by a company director, gross earnings or the gross trading profit of the corporation cannot be substituted for a working director’s PIAWE.

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Partners

A partnership is not recognised as a separate legal entity from its partners and it therefore cannot employ the partners. Partners cannot employ each other either. Therefore they are considered self-employed and are not workers under the legislation.

Partners can employ other people to work for them and these people will be considered workers as long as the requirements for a contract of service exist.

While a partner cannot be considered a worker in their own unincorporated business, they may perform work for other companies/employers and may be deemed to be a worker for that employer.

Sole proprietors

A sole proprietor (sole owner of an unincorporated business) is self-employed and cannot be considered as working under a contract of service, unless deemed so under the legislation.

This does not preclude other people who work for the sole proprietor being workers for that employer where the requirements for a contract of service are met.

Trustees

To determine eligibility for a trustee it must be determined whether the trustee is a natural person or an incorporated entity.

If the trustee is a natural person, they are not deemed to be a worker under the legislation.

Assess the PIAWE of a deemed worker

For a self-employed person who is deemed to be a worker under the legislation, PIAWE is based on the gross income/salary/wage of the worker for the 12 months before the injury.

If the worker has been employed for a period less than 12 months, a lesser period can be assessed as long as the worker has been employed consistently with that one employer.

If injured, a company director’s PIAWE is determined by the amount of wages and salary received from their employer, that is, the corporation. However, this does not include the amount the director receives as directors’ fees or company dividends.

Agent must assess the wages/salary of the worker for the 12 months before the injury.

Information to determine wages/salary

Payroll records and payment advices along with withholding summaries for tax withheld by the company can be used to determine PIAWE.

The payroll records will give an account of the number of employees on the company's payroll and the amount they receive less tax.

These financial records show the income and the expenses for the company over the year. The ‘wages’ and/or ‘salaries’ should match taxation documentation supplied by the worker.

If there is more than one worker at the company (for example, a spouse Spouse of a person means a person to whom that person is married who does the bookkeeping), Agents will need to investigate further as to who has received what portion of the wages stated on the Profit and Loss Statement.

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Workers taxation assessment & group certificate

The financial year before the injury can be used to determine the workers earnings for the 12 months before the injury. Allowances are usually for vehicles, bonuses are usually commissions or gifts and lump sums usually apply to pay-outs. These are not considered wages.

Taxation assessment notice

The amount of taxable income should be the same as the group certificate amount. If it is higher, then there is an additional amount that has been included. This may be distributions from a trust, capital gains, other income from another source or other earnings not related to the company or the injury in question. The gross taxable income amount on the tax assessment notice should be about 10-15% lower than the group certificate amount because the assessment notice amount has the tax deductions withdrawn already.

Tax return

Review the amount listed as primary income (as long as it matches the Group Certificate amount). There is also provision for income earned from primary production, capital gains and distributions from trusts. These are not included to assess PIAWE.

If an assessment of PIAWE still cannot be made, look at the company or trust tax returns and taxation assessment and repeat the process above.

Income splitting

Income splitting occurs when the total income is split between two people to reduce a taxation obligation. While it is perfectly legal, it cannot be ‘undone’ for the purposes of compensation.

For example A worker earns $50,000 per year and his/her spouse earns nothing. They can split the income to show $25,000 income each to reduce their tax. If the worker is injured, the taxable income to calculate PIAWE is $25,000 not $50,000.

Premium files

The premium file can assist to determine a worker's PIAWE. Premium information will provide details of the number of full and part-time workers for the company. This will assist in assessing gross amount of wages or salary in a Statement of Comprehensive Income (Profit and Loss Statement) and/or in the company's tax documents.

Premium information also provides details of the rateable remuneration figure (estimated and re-estimated) for each year, which will help to determine how much the company has paid in salaries over the period of 12 months.

Apprenticeship wages are not included in the total. However, superannuation is included, making the comparison quite effective.

New companies

There will be new companies that cannot provide financial documentation because they have not been in existence for a full six or 12 month period.

Agents should request the payroll records of the company in full, which will include:

• the payroll record
• the employees withholding summaries in total
• PAYG statements
• payment advices
• bank records that show the payments of monies and receipts of employees' salaries.

Agents will also need to take an assessment of the current expenses allocated against the income of the company.

The gross income of a company is not a useful guide to PIAWE as every company has to incur expenses against that income. These expenses vary with each type of company, for example, a transport company will have high costs for fuel, insurance, maintenance, which the company will incur to derive the gross income.

PIAWE must only be assessed as a net amount of expenses incurred in deriving the income.

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