How are Loss of Earnings (LOE) benefits assessed for self employed clients?
This policy must be read in conjunction with the Loss of Earnings Benefits policy.
Who is a self-employed person?
A self-employed person is someone who operates, owns, and is responsible for running a business.
The TAC will have regard to the entirety of the client's circumstances in determining whether a client is self-employed. The following factors will typically be relevant:
- The legal and taxation structure of the business (sole trader, partnership, company, trust or other structure)
- The size and scale of the business
- The nature of the operations of the business
- The existence of a registered ABN
- The client's ownership interest in the business
- The specific role and duties performed by the client in the business, including whether the client is solely responsible for the management of their business
- The specific role and duties performed by other key individuals in the business
- The extent of individual remuneration received from the business, and the form of that remuneration
If having regard to all of the circumstances, the TAC determines that the person is self employed, then the person's claim for loss of earnings will be assessed in accordance with this policy.
Interim payments to self-employed persons injured in transport accidents on or after 1 January 2005
Self-employed Interim payments
Where an earner, who was self employed, suffers a total loss of earnings as a result of, or that is materially contributed to by the injury, the TAC can potentially pay a client an interim payment of 75% of the Statutory Maximum Amount until the day on which the first of these events occurs:
- the client no longer suffers a loss of earnings or
- the expiry of the first 12 weeks of that period entitlement or
- the TAC determines the amount of the client's pre accident weekly earnings.
However, if a person lodges a claim after the first 12 weeks of their period of entitlement coming to an end, then the TAC is unable to make an interim payment.
What occurs once the TAC has determined the client's pre-accident weekly earnings?
As soon as the TAC has determined the client's pre accident weekly earnings, the LOE benefit is calculated. The TAC will then determine the difference between the LOE entitlement and the interim amount that the client has already received.
If the client has been paid less than he/she was entitled to for the relevant period, the TAC will pay the amount of the difference to the client as soon as is practicable after determining the amount.
If the client has been paid more than he/she was entitled to for the relevant period, the TAC may recover the amount of the difference by off-setting the amount of the overpayment from any future LOE payments. The TAC will not recover any interim overpayments made before the expiry of the first 12 weeks of that period of entitlement.
Self-employed Loss of Earnings Assessments
How will the TAC assess a self-employed client's claim for loss of earnings?
When assessing a self-employed client's loss of earnings claim, the TAC will have regard to relevant information depending on the nature, size and structure of the client's business. The TAC will determine the client's pre-accident weekly earnings by having regard to:
- the client's earnings during the three years immediately before the accident
- the costs incurred by the client to employ the services of a person(s) for the business (also called substitute labour ) due to the clients incapacity from the transport accident injuries
- any other amounts the client could have earned from any other occupation.
The TAC will generally make this determination using the client's income tax returns and business financial statements including profit and loss reports and other business books and records.
Earnings are defined as income from personal exertion. The TAC will not include income from interest, rents and dividends when assessing a self-employed client's LOE claim.
Depending on the client's circumstances, a combination of the following information may also be relevant and required to be supplied prior to an LOE assessment being made:
- Individual Income Tax Returns and accompanying Notices of Assessment
- Company, partnership or trust tax returns if applicable
- Detailed and Itemised financial statements including profit and loss statements, balance sheets, and notes of the financial accounts
- Business Activity Statements
- Bank statements
- Duty statements detailing duties the client and relevant staff performed prior to, and where applicable after the accident.
- Statements or letters from sub-contractors, contractors, business partners, customers or suppliers accompanied by a statutory declaration.
- Statements of other independent witnesses providing evidence of regular work and earnings.
- Copies of contracts, rosters, appointment books, ledgers, or time sheets.
Loss Related to Contribution in the Business
The TAC may pay LOE benefits to a self-employed client if the client can demonstrate:
- A work contribution to the business and
- They have sustained a financial loss of earnings as a result of injuries from the transport accident.
Where the client's injuries do not result in the business ceasing, a loss of earnings may not occur when the other partner carries on the business with little or no other assistance. Further evidence including relevant business records may be required in these circumstances, to determine the impact of the injuries on the performance of the business after the accident.
The TAC will only pay LOE benefits where there is evidence that a loss of earnings has occurred due to the transport accident injuries.
Loss of Earnings must be Demonstrated
The TAC will only pay LOE benefits where a demonstrable loss of earnings has occurred. Ceasing to draw a salary or income from the business may not be sufficient evidence of a financial loss.
The TAC will make this assessment using the books and records of the business, and will compare the performance of the business before the accident and after the accident. The focus will be on identifying how and to what extent the client's injuries are causing an ongoing financial loss in the business.
Assessments based on substitute labour
Substitute labour refers to the costs a self-employed client incurs to employ labour to work in the client's business, because the client is unable to carry out the work as a result the transport accident injuries.
How are the costs of substitute labour taken into account?
The TAC will take into account the costs of employing substitute labour to perform the duties, which the client is unable to perform as a result of injuries from the transport accident, during the first 18 months after the accident.
What information does the TAC require in relation to substitute labour?
The TAC requires the following information:
- The name and address of the person employed after the accident
- The number of days and hours worked following the accident
- The wage being paid
- Duties being performed by the substitute person
- Copies of any cheque or cheque butts, remittance advices or bank statements detailing the payments made out to the hired person
- Copies of contracts and appointment letters
- Details of any person employed by the business prior to the accident, including name and contact details and their duties.
The TAC may inspect a client's business records to verify substitute labour details and will periodically review the need for continuing substitute labour relating to transport accident injuries. These periodic reviews may require ongoing provision of business records so that the overall performance of the business can be assessed in the context of utilisation of the substitute labour.
Are substitute labour costs indexed?
The TAC will not apply the normal indexation increases for substitute labour costs, as they represent the reimbursement that was paid at the time to the hired substitute labour, to perform the work for the client's business.