“How do we recover that cost?”: Victorian businesses cope with surging cost of average WorkCover premium

Victorian small and medium businesses are now considering budget adjustments and passing on the cost of labour, as they add surging WorkCover insurance premiums to the list of growing operational expenses.

WorkCover insurance covers the costs of injuries or illnesses employees sustain while on the job, and is compulsory for Victorian businesses with annual wage bills over $7,500.

Premiums are calculated as a percentage of a business’ total remuneration, covering both wages and superannuation.

The industry average premium rose from 1.27% to 1.8% on July 1 this year, representing an average 41% increase across more than 500 distinct business groups.

The Victorian government said it was necessary to raise those premiums to cope with the rising cost of payouts, as the system’s claims liability has tripled since 2010.

WorkCover is “fundamentally broken” in its current guise, the state government said in May.

The gap between benefits paid and premiums received each year stands at $1.1 billion and is only growing, the state government added.

Now, Victorian businesses are contemplating how to handle the cost of rising insurance premiums, while also handling external financial pressures.

Premium increases “another overhead” to manage

Melissa Barry is the managing director of Border Crane Consultants, specialising in the sales, installation, and servicing of cranes and other plant equipment.

Based on the Victorian side of the Albury-Wodonga region, the business employs 40 people across its engineering and certification teams, and operates nationwide.

Barry told SmartCompany changes to Victorian WorkCover premium rates will see her insurance costs rise approximately 23%, but she expects Border Crane Consultants to face even higher costs in practice.

“I actually think that it’s gonna up higher, because of what our actual wages are, and what our forecasts for the next 12 months,” she said.

The business will need to reconsider its spending plans to adjust for the WorkCover premium hike.

“How do we how do we recover that cost, if that makes sense, the cost of us doing business?” she said.

“What are the alternatives? Do we have to try and budget to save money in other areas, or increase our labour rates to offset that cost incurred to our business?”

The cost hike is only compounded by the recent increase in the superannuation guarantee rate — which also feeds into the WorkCover premiums payable by Victorian businesses.

“Nothing is going down… Ultimately, it just means that’s another overhead that the business has to factor in in terms of looking at its profitability and its operational costs,” she added.

Fortunately, Border Crane Consultants will not be forced to change the way it works, Barry said.

Not every small business may be so lucky.

“Mum and Dad owner businesses might not even really be aware of what impact this is going to have on their business yet, they might not have even had time to sit down and compare previous rates against this year’s rates.”

Some operators question industry averages

Speaking to SmartCompany, the operator of a small road transport business questioned the way premium rates vary across industries.

The business owner, who preferred to remain anonymous, said, “the 1.8% average does my head in”.

“There are industries out there paying an awful lot more than that… the scale seems to be out of proportion,” they added.

They suggested a single flat rate could provide breathing room to small businesses by allowing bigger competitors to pick up more of those costs.

Businesses facing a higher risk of worker injury or illness should face further proactive support from workplace health and safety regulators, instead of rising premiums, they added.

As it stands, they said WorkCover premium increases only add to what they see as an “irrational” environment for small business owners.

Most premiums to remain under $5,000

While businesses reconsider their spending plans, SmartCompany understands nearly three-quarters of annual WorkCover premiums will remain under $5,000 in the 2023-2024 financial year.

That figure includes 43% of employers that will be charged less than $1,000 and 25% of employers that will be charged the minimum premium of $330.

Around 10% of employers under the WorkCover system will be spared the harshest premium increases, and will either see a rate decrease or an increase below 30% compared to 2022-2023.

Even so, SmartCompany understands call volumes to WorkSafe Victoria’s advisory service, relating to premiums, are slightly higher than this time last year.

A variety of payment options are available for businesses with annual premiums over $1000, with WorkSafe Victoria advising businesses to contact a WorkSafe agent regarding payment plans.

Discounts of up to 5% are also available in some circumstances if businesses can demonstrate safe and healthy workplaces over an extended period of time, or if they pay their premium early.