Protect Your Employees and Your Cash Flow with WorkCover through Premium Funding
WorkCover is an insurance that employers take out to cover their workers if they are injured or become ill because of their job. If a work-related injury or illness occurs, the worker may receive payments for medical treatment, rehabilitation and lost income, subject to the rules of the relevant state or territory scheme.
For businesses, the WorkCover premium can be a significant expense. Planning for it involves understanding how the premium is calculated, how it relates to payroll and how paying it will affect the business’s budget and cash flow.
Include WorkCover in financial forecasts
A WorkCover premium may be affected by employee remuneration, industry classification, workplace risk and previous claims. Changes in payroll or business activities can therefore result in a different premium from one year to the next.
Including an estimated WorkCover premium in the annual budget can help a business prepare for the expense. Where the premium is paid annually, setting aside funds progressively may reduce the effect of a large payment at renewal time.
Forecasts and premium estimates should be reviewed when there are significant changes, such as:
An increase or decrease in employee numbers
Changes to wages, overtime or allowances
Expansion into a new type of work
Business restructuring or acquisitions
A workers compensation claim
A change in the timing of other major expenses
Accurate payroll records are also important. If the remuneration reported for WorkCover purposes differs from the business’s actual payroll figures, the premium may need to be adjusted following reconciliation.
Periodically comparing payroll reports with the figures used to estimate the WorkCover premium can help identify differences early and support more reliable financial planning.
How premium funding works
Premium funding is a separate finance arrangement used to pay an insurance premium. Instead of paying the full WorkCover premium upfront, the business makes regular repayments over an agreed period.
The premium funder generally pays the insurer or insurance intermediary on behalf of the business. The business then repays the funded amount, together with interest and any applicable fees.
Premium funding does not reduce the WorkCover premium or change the underlying insurance cover. It simply changes how and when the premium is paid.
Why a business should consider premium funding
Paying a WorkCover premium upfront may place short-term pressure on cash flow, particularly if the renewal coincides with wages, tax obligations, supplier payments or other insurance expenses. However, choosing the insurer’s monthly or quarterly instalment plan may increase the total premium payable.
Consider a business with a base WorkCover premium of $100,000:
| Cost comparison | Quarterly instalment option | Discounted premium with funding |
|---|---|---|
| Base WorkCover premium | $100,000 | $100,000 |
| Instalment increase or early-payment discount | +$10,000 | −$5,000 |
| Premium after adjustment | $110,000 | $95,000 |
| Premium-funding interest and fees | Not applicable | +$7,000 |
| Total estimated cost | $110,000 | $102,000 |
| Estimated difference | — | $8,000 less |
In this example, paying quarterly increases the base premium by approximately 10%, bringing the total cost to $110,000.
By comparison, paying by the early deadline reduces the premium by 5% to $95,000. After adding $7,000 in premium-funding interest and fees, the estimated total is $102,000. The business spreads the cost over time while paying approximately $8,000 less than it would under the quarterly option.
This example is illustrative only. Actual discounts, instalment costs, interest rates, fees and payment terms will vary. Businesses should obtain the applicable figures and compare the total cost of each option—not simply the size of each repayment.
Premium funding may also help a business:
Retain more working capital for operating expenses
Avoid a significant one-off cash payment
Create a more predictable repayment schedule
Align the expense more closely with monthly cash flow
Manage several insurance renewals occurring at the same time
The relevant comparison is between the insurer’s total instalment cost and the discounted annual premium plus all funding interest and fees. This provides a clearer basis for deciding which option is more appropriate for the business.
Premium funding provides useful flexibility, but it also creates an additional financial obligation. Reviewing WorkCover insurance alongside payroll records, annual budgets and cash-flow forecasts can help a business understand the cost of the premium and choose a payment approach that suits its financial position.