RECRUITMENT AND CONSULTING SERVICES ASSOCIATION LTD. Submission to the Accident Compensation Corporation. Regarding 2005/05 Levy Rates for Employers

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1 New Zealand Secretariat PO Box Glen Eden, Auckland Ph: Fax: RECRUITMENT AND CONSULTING SERVICES ASSOCIATION LTD Submission to the Accident Compensation Corporation Regarding 2005/05 Levy Rates for Employers Date: 16 September 2004 Via Contact: Andrew McComish Ph: or Julie Mills Chief Executive Officer Recruitment and Consulting Services Association PO Box Collins Street East MELBOURNE VIC 8003 Ph: Page 1

2 INTRODUCTION The Recruitment and Consulting Services Association (RCSA) welcomes to opportunity to present its concerns and recommendations to the Accident Compensation Corporation regarding the 2005/06 levy rates for employers. Specifically, this submission will address: the average composite employer levy rate, levy classification and risk groups, partnership programme framework, and workplace safety incentives for small employers and the self-employed. In general, however, the RCSA is concerned to see a trend in using the Composite Levy during the consultation process. It is our view that the Employer Work Levy and Residual Claims Levy are two quite separate issues and as such should be clearly isolated in information provided on levies. We believe the Composite Levy approach only serves to confuse these separate issues and as a consequence any subsequent discussions tend to be fogged by this confusion. We also note that ACC uses an example of a major claim costing in excess of $10m a figure we can appreciate. However, we believe such a figure should not be applied when assessing levies for our industry. We note that we, unfortunately, have one Tetraplegic amongst our industry claims history this being by far the worst long term injury in our history. We also note the current year claims costs were $124,000. Given this person has 45 years worth of costs ahead, this would only produce a requirement to fund this injury to the level of $560,000 (Please note that the RCSA is unaware of the circumstance behind this claim and we are very disappointed to see such an injury occurring in our industry.) THE RECRUITMENT AND CONSULTING SERVICES ASSOCIATION LTD The RCSA is the peak body for the recruitment and consulting services industry throughout Australia and New Zealand. It is a not-for-profit association that is managed by a Board of Directors. The central focus of the RCSA is to represent and serve the interests of members for the increased profile and professionalism of the industry. The RCSA has more than 3200 members in Australia and New Zealand comprising multi-national companies, single consultancies, and individual practitioners operating within a recruitment consultancy. This includes the majority of recognised names within the industry in New Zealand. Page 2

3 The association is instrumental in setting the professional standards, educating and developing member skills, monitoring industry participant performance and working with legislators to formulate the future. Members are kept up-to-date on information regarding best practice techniques, resources and technological innovation, along with legislative changes impacting on employment. The RCSA also acts as a lobbying voice, representing its members on issues that impact upon the industry. It has a strong relationship with the public and private sector. Members offer the following capabilities: On-hired employee services On-hired contractor services Recruitment services Employment consulting services As an industry that provides employment to every other industry in New Zealand from manufacturing to agriculture, we have an insight into the impact of changes to accident compensation levies and welcome the opportunity to respond to proposed Levy changes. RCSA New Zealand Corporate members directly employ over 1,500 staff within their own businesses and represent the following numbers of workers: Temporary/on-hire employees working on any single day: 10,500 Candidates registered seeking temporary/on-hire employment: 35,500 Contractors working on a contract on any single day: 1,700 Candidates registered as seeking contract work: 7,500 It is important to note that member companies of this Association have combined earnings in excess of $185 million and their self employed independent contractors will earn in excess of $40 million. The RCSA mission is to be recognised as the professional representative body and recognised authority for recruitment, on-hire and associated consulting services in New Zealand and Australia by: ensuring members provide high value, high quality and responsive recruitment and consulting services to clients ensuring members deal with candidates in a professional and honest manner being the recognised voice of the profession on recruitment issues advancing the professional development of the Members so that the profession of recruitment is advanced and continues to deliver services to the community of the highest standard. RCSA members are required to meet stringent professional standards as established in the Constitution, Membership Rules and Code for Professional Practice. There is access to a formal complaints process for clients and candidates if there is any dispute regarding the provision of services. Page 3

4 This established framework ensures RCSA members are socially responsible and we recognise the need for employees to access ACC entitlements and to entitlements which cover periods of sickness, bereavement and holidays at a standard that society as a whole considers acceptable. The Flexible Workforce To guarantee New Zealand s economic growth it is essential that ACC levies properly reflect the risk individual industries pose. To encourage economic growth, business compliance costs need to be minimised and employers need assurances they are getting value from the payment of any ACC levies. A flexible workforce is now an economic and social reality. People are choosing diversity in work patterns that suit their individual circumstances. This includes: employment that is permanent, employment that provides for time off in school holidays, employment that allows late starts and early finishes, employment that is a stop-gap between opportunities, employment that provides for greater and diverse work experiences employment of a fixed short-term nature, and employment with one employer in one week and employment with other multiple employers the following week/s at a greater or lesser rate of pay. This may include returning to the original employer within a 12-month period. Clients and jobseekers work in partnership with RCSA members to access any combination of the employment patterns indicated but the three primary services can be summarized as: the provision of temporary or on-hire staff for short term employment where the employee remains on the payroll of the member but works in the client s workplace the provision of contract staff for fixed term employment where the person is a self employed contractor but works in the client s workplace the identification of candidates who best suit the client s vacant permanent positions and will therefore be on the payroll of the client and work in the client s workplace. Injury and risk The RCSA notes that each of these patterns creates its own injury risk profile and we endeavour to provide our Members with the tools to assist them with managing the risks associated with each pattern. The RCSA membership represents the many varied employment relationships that reflect current diverse patterns, and associated injury risk, in a flexible workforce. We also recognise the injury risk to people working in such an industry and the associated social and economic costs of short-to-long term claims for such injuries. Page 4

5 We are committed to a risk management strategy which focuses on injury prevention and this is evidenced by our commitment to the On-Hire Industry Injury Prevention Forum. This, along with many other initiatives places the industry in a unique position to comment on ACC levies that impact on the industry. The RCSA has reviewed the proposed ACC levies and the following represents our views on those proposals SITUATION ANALYSIS The On-Hire Industry Injury Prevention Forum has been provided with the following statistics: New Claims: 2004 down to 397 from 456 in 2003 New Claim Costs: 2004 down to $976,153 from $1,364,763 in 2003 Males have greater claim numbers and costs than females, while Maori and Pacific Islanders represent 30% of claims: both figures being significantly disproportionate to the general population. Elementary Occupations and Industrial sites make up approx 50% of claims. There were no deaths and there appear to be no serious injuries. Ongoing Claims: Numbers and costs are on the rise. We note that the revenue required to manage these claims (excepting Residual Claims which are separately funded) has already been collected from previous year levies under the Fully Funded nature of the ACC scheme. Scope Higher than expected levy income and returns on ACC investments during 2003/04 has resulted in reserve levels currently being higher than the reserve s target. ACC proposes that these excess reserves be used to: absorb the increased funding required for the pre-1999 residual claims; fund small increases in work related claim and scheme costs; and preserve ongoing levy stability. For the 2005/06 levy rates ACC is proposing to: maintain the average composite employer levy rate at the current 2004/05 rate of $1.21 for every $100 of payroll; maintain the current 129 risk groups for the employers work levy; maintain the current 41 risk groups for the pre-1999 claims levy; and amend the description of how the discount for the Partnership Discount Plans is calculated to improve understanding and better align it with standard levy assessments. Page 5

6 With respect to the on-hire industry the proposed composite changes for 2005/06 are: LRG LCU Description Pre 1999 Levy Employer Work Levy Overall Change Employment services (candidate or $0.32 $ % contractor placement - no on- hired employees) Employment services (on- hired $0.20 $ % employees only office work assignments) Employment services (on- hired $0.59 $2.66-3% employees - non- office work assignments, including up to 30% office work) Employment services (on- hired $0.32 $1.66-5% employees mixed classification assignments, minimum 30% office work) Nursing Bureau $0.18 $ % ACC is also exploring the merits and options for introducing a workplace safety incentive scheme for small employers and the self-employed. The objectives of the proposed scheme are to: increase injury prevention activity and thereby reduce work injuries; and improve levy payer equity (i.e. levy payers that manage their work hazards pay less while those that do not pay more via a loading). Page 6

7 THE KEY ISSUES Average Composite Employer Levy Rate ACC is proposing to maintain the 2005/06 average composite employer rate at the current rate of $1.21 for every $100 of payroll. This is made up of a reduction in the Employer Work Levy from $0.91 to $0.88. The Residual Claims Levy will increase by 10%. The following show the proposed changes to the levies in the On-Hire Industry: Employer Work Levy LRG LCU Description Current Proposed Change Levy Levy Employment services (candidate or $0.20 $ % contractor placement - no on- hired employees) Employment services (on- hired $0.20 $ % employees only office work assignments) Employment services (on- hired $2.74 $2.66-3% employees - non- office work assignments, including up to 30% office work) Employment services (on- hired $1.79 $1.66-7% employees mixed classification assignments, minimum 30% office work) Nursing Bureau $1.12 $ % Pre 1999 Claims Levy (Residual Claims Levy) LRG LCU Description Current Proposed Change Levy Levy G Employment services (candidate or $0.30 $0.32 7% contractor placement - no on- hired employees) L Employment services (on- hired $0.17 $ % employees only office work assignments) E Employment services (on- hired $0.62 $0.59-5% employees - non- office work assignments, including up to 30% office work) G Employment services (on- hired $0.30 $0.32 7% employees mixed classification assignments, minimum 30% office work) O Nursing Bureau $0.16 $ % Page 7

8 1. The RCSA is disappointed to see significant increases in Employer Work Levies for three of our LCU s. These increases do not seem to reflect the reduction in Claim Numbers and Claim Costs experienced by our industry. We take this as an indication that ACC perceives the risks in our industry have worsened in these areas. With respect to risk, this flags the need for greater investment in injury prevention initiatives in these areas. 2. The RCSA is also disappointed to see increases in Pre-1999 claim Levies in all except one of our LCU s. The control of these costs are outside our direct influence however we would encourage ACC to focus on developing strategies that would see cost reductions with subsequent reductions in this particular levy. To assist, the RCSA is happy to discuss with ACC ways in which the industry may be able to assist with the vocational rehabilitation of long term claimants. 3. The RCSA congratulates ACC on returning greater than expected benefits from its investment activities. It is pleasing to see reserves investments returning such positive dividends. We are however concerned that investment cycles will typically follow a boom/bust cycle with performance between these extremes. It is therefore our preference to see these additional dividends applied to the reserves, rather than directly to the levies, to provide a buffer for the inevitable downturn (and consequent future increase in levies) in investment returns. 4. It is the RCSA s view that ACC clients will read their levy rates as a measure of risk applied to their industry. We are concerned that the application of reserves investment dividends to the Employer Work Levy will reduce the levy payable and will consequently artificially reduce the perceived risk. This reduction in perceived risk may influence risk management drivers in a negative way which will see an increase in claims and related costs. 5. The RCSA is also interested to note that current year levy revenues are higher than expected. We take this to mean that levy revenue is greater than the expected current and ongoing cost of current year claims. This suggests that levy payers have paid more than they have needed. Consequently we would prefer to see these excess payments returned directly back to levy payers by way of a reduction in their next year levy rates. 6. The RCSA appreciates ACC s desire to maintain greater levy stability. There appears to be several ways of achieving this: the application of surplus levy revenues to offset any increases. provide a greater focus on injury prevention, so that claim numbers are reduced; emergency response so that when an injury does occur its long term ramifications are minimized and a greater focus on injury management to ensure a speedy return to pre-injury condition. Page 8

9 The RCSA would prefer to see this multi-facetted approach - coupled with incentives/rewards for those employers who invest in a safety philosophy and appropriate action taken with those employers who fail to make such investments. 7. The RCSA appreciates that ACC has received a greater than expected number of work related claims. (We note that our industry has actually reduced both the number of Claims and the Costs of these claims.) We suggest that the increase is due to two key drivers: A positive economy which is seeing more people in work and thus greater exposure to risk (and consequently a greater earnings pool); a skills shortage which is seeing: employers recruit people with less skill and ability (including perhaps lower personal safety management skill); increased immigration from peoples with cultures that have different work safety cultures than NZ; a lack of focus by the school education system on manual trades or occupations requiring practical skills while it moves pupils into a tertiary system focusing on new economy technologies; and the provision of TEC funded courses with little practical application to current workplace requirements (for example Dive Instructor courses). These are, we believe, infrastructural issues which cannot be overcome alone by ACC however we believe ACC is in a position to influence decision makers and policy drivers to steer a path which includes gaining skills which bring in some risk management abilities. 8. The RCSA has the view that over the next levy year employers will continue to experience skills shortages. This will lead to a continuance of experiences found in Point 7 above. It will also lead to increased working hours by existing staff which will consequently lead to greater life stressors and distractions from safety. Thus leading to a further increase in claims and perhaps an increase in the severity of those injuries. 9. The RCSA is of the view that the skills shortage will create a supply/demand inflationary effect on wages. This will increase the Annual Earnings on which ACC will be able to offset any increases in injury numbers and related costs 10. The RCSA appreciates that over the past few years ACC has invested more into Injury Prevention. We believe this is a very positive approach and we support ACC requiring additional resources to fund these activities. We believe the investment is paying dividends, as evidenced by the reduction in our claim figures, and will continue to pay dividends in the future. 11. The RCSA is concerned to see that pre-1999 injuries are proving to be difficult to reconcile. We expect that this is due to the relative ease of bringing the less seriously injured back to a position of being independent from the scheme. This was to be expected when the Residual Claims Premium was first established and we expected that levy rates would have been set accordingly. Page 9

10 We appreciate that there will be some claimants who will be very difficult to rehabilitate due to the nature of their injuries and we support the ongoing provision of appropriate compensation for these people. The RCSA is prepared to work with ACC to develop ways of assisting people to return to work. 12. The RCSA is concerned increased hospital surgical costs are seen as a driver for increasing the Residual Claim Levy. We had expected that injured workers would have received any necessary surgical assistance at the time of the injury (and this being the most costly of such expenditure) with ongoing surgical costs reducing as rehabilitation initiatives, and the success of previous surgery impacts on the claimant. Levy Classification and Risk Groups ACC is proposing to maintain the 129 risk groups for the employer work levy and the 41 risk groups for the pre-1999 claims levy. 1. The RCSA supports the continuance of the existing levy classifications and risks groups. This enables a more meaningful analysis of data which could not be achieved with changing classifications Partnership Programme Framework ACC is proposing to replace the current description of how the discount for the Partnership Discount Plans should be calculated with a more general object / intent statement and place the detailed description and assessment in the annual public consultation document on employer levies. 1. The RCSA supports this approach Workplace Safety Incentives For Small Employers And The Self-Employed ACC wishes to explore the merits and options for introducing a workplace safety incentive for employers with fewer than 20 staff and the self-employed. This incentive would initially be made available only in those sectors with high numbers of work-related injuries namely agriculture, forestry, construction, road freight and motor trades. If the incentive scheme goes ahead, ACC would plan to have the incentives available from 1 April The RCSA commends ACC for pursuing an incentive scheme for small employers to improve their approaches towards injury prevention. 2. The RCSA is committed to assisting our smaller Members with injury prevention activities aimed at reducing work injuries and we affirm our support of ACC in seeing our Members benefit from access to these incentives. Page 10

11 RECOMMENDATIONS 1. The RCSA recommends that ACC review the proposed Employer Work Levy s for our industry, with a view to reducing the levies payable as a reflection of the reduced number of claims, and subsequent claim costs. 2. The RCSA continues to oppose the application of Employer Residual Claims Levies to non-work injuries of earners for injuries occurring prior to 1 July We are of the view that this is an unreasonable burden on modern day employers who had no input into the risk management, and subsequent claims management of these claims. We recommend that the ACC propose an alternative means for funding these claim costs. 3. The RCSA recommends that higher than expected current year levy revenue should be applied to levy payers by way of a levy reduction for future years. 4. The RCSA recommends that Reserves Dividends should be applied to the reserves account to offset future downturns in reserves revenues. 5. The RCSA recommends that ACC continue to focus on Injury Prevention strategies as this will be the key driver for reducing future claims and subsequent costs. 6. The RCSA recommends that ACC create dialogue with the RCSA with the view of creating a pathway for returning long term claimants back to work. 7. The RCSA recommends that ACC move away from current trends towards discussing a Composite Levy and return to discussing in isolation the Employer Work Levy and the Residual Claims Levy 8. The RCSA recommends that ACC continue to pursue the initiative to reward small to medium size employers with incentives for injury prevention plans. Page 11

12 CONCLUSION The RCSA is the leading industry body for recruitment and on-hired employee services - that is we represent the experts in flexible employment solutions. We would like to thank the Accident Compensation Corporation for the opportunity to present our views on the issues. Given the proposed changes to levies to five LCUs for our industry, we believe we have a critical role to play in ensuring that this consultation remains balanced and its outcomes are sustainable for all parties. The implications of ill-considered levies could place New Zealand in a significant competitive cost disadvantage on a global scale. The RCSA has access to a wide variety of statistics and information relating to employment service provision, and would be willing to share this information to aid a more detailed consideration of the implications arising from the proposed levy changes. We are keen to work with the Government, and discuss our views further to develop a workable solution that gives both employers and employees choices and protections, and consequently builds our economy. Page 12

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