Workers Compensation Insurance for Trust

Hi All,

This post is not related to properties.

Herewith I've attached my business structure. I'm doing businesses under my Business Trust and feeding 100% of income to Family Trust; and profit get divided amongst beneficiaries at the end of the year (me, wife, family pty ltd).

I'm trying to get a workers compensation insurance for my business. And I'm not sure how it's gonna work since I'm not paying any wages (for me; and I'm only employee).

It would be much appreciated if you could give your ideas regarding this matter.



Thanks and Regards

 

Workers comp only covers "workers" and premiums are based on remuneration and the industry classification. In the absence of payments in the nature of remuneration (they have a policy manual) can see declined cover. If unpaid they may rehab the worker but not pay wages and salary etc as there wont be a proven loss of earnings. There are also some notional elements of remuneration but this tends to limit benefits. Its a bit like insuring income and not working.

https://www.icare.nsw.gov.au/-/medi...t-of-your-premium/wages-definition-manual.pdf is a guide to do some preliminary reading perhaps. Page 20 doesnt explain well that they can fight and argue over distributions when wages arent being paid. Many people think trust distribution mean a worker isnt insured. Thay can be. It just determining what they do and how much of the distribution is profits and how much is for work. It clouds the issue.
Also consider single touch payroll etc as well if required. Best to discuss with iCare in NSW.

 

Talk to your broker or workers comp authority in your state.

Advice on an insurance policy is financial advice (if it is a policy). And it varies by state.

Generally no wage = no cover.

 

Safest way is to pay yourself market wages and get a policy & declare those wages.

 

Not quite. Each state's policies vary. Quite a lot. In NSW trust income for the work performed can be and is assessed on the market value of work performed leaving that very subjective. It isnt always wise as it can mean a lower value of "lost wages". Or nil if work isnt evident beyond mere Director duties. Then the super trade off etc all impact so paying actual wages may also not suit. In a simple situation where a beneficiary / trustee Director manages a trading entity and draws a distribution annually it may be quite straight forward for a insurer to assess the market value of the services. But not always. Throw in kids and spouse distributions and its cloudy.

In NSW the value of "wages" is defined in the "manual" in the link I provided in my post which define "wages" far more broadly that that of tax purposes. There is no obligation to pay wages BUT that exposes some risks and some costs you wouldnt consider "wages"affect premiums. This can include some contractors for example. Super, allowances and many other elements. Fringe Benefits etc. Trust distributions can be a very grey area allowing a lot of variation for dispute when a injury claim occurs. Proof of what work is performed is a one issue too.

NSW is regulated so iCare is the sole provider and while general insurers can include a policy within a small business package its highly regulated and brokers typically dont support WComp as they cant earn income from writing a policy. They can charge a direct fee. They largely avoid it as its not a money maker. This was alegal issue to ensure premiums are retained as low.

All claims are outsourced by icare to a small number of service providers who are placed under cost pressures to manage claims (down)....iCare has well publicised financial loss issue which ipacts the NSW budget. The lesson here is insurers will always seek ways to limit claims.

I am not posting to critque what Ross has said but to indicate the very different approach in each state.

 

Thanks for all information provided Paul. It's really useful for me as I'm in NSW.

My primary goal is to get my income covered during unexpected situation. I'm just wondering whether it should be workers compensation insurance for trust or income protection for myself. I'm not sure whether I can proceed (claim when necessary) with Income Protection, since I'm paying no wages myself at the moment.

 

Why are you not receiving a wage? Are you aware of the under remuneration provisions in the bankrupcty act?

 

I beleive I indicated you MIGHT as NSW iCare doesnt "need"wages. However the manner of the entity which pays you distributions may or may not be a concern. Discuss with iCare.

eg Trading Unit trust pays distribs to a disc trust. In that case the deemed wages may be sufficiently remote that the disc trust inst counted as remuneration and so the policy in the Unit trust may be a issue. eg The work is performed in the UT but no deemed wages income is paid by that trust. A issue with the structure and the way remuneration is being paid. May be necessary then to consider paying base salalry from the UT and profits from the DT. It may be fine for separation and asset protection possibly but may overlook the insurance.

One of the most common issues I see from small businesses who operate as sole traders and partnership is they have NO WORKERS COMP cover for themselves, only their workers. A company would cover them. I had a client who disregarded my advice on this issue and three months later fell from ladder and tore knee ligaments taking him off work for 6 months. He was uninsured as a sole trader. He then remembered why I suggested he use a company.

We see this with income protection insurance too. Person wont usually be covered at all. They dont get the right sort of income so the policy will pay nothing. The trust income isnt usually of the type the IP policy covers. Could even affect a TPI claim in a super policy too.