#TipTuesday - Processing Workers Compensation payments to employees in Reckon One

John G · April 1

Under Single Touch Payroll Phase 2 (STP2), Workers Compensation payments are defined differently than previously, introducing the division between the employee doing some work or no work at all.

Where no work is done – that is, the employee is not capable of doing any work for the business - Workers Compensation is defined as leave and reported in STP2 as “Leave type W”.
If some work is done, then the Workers Compensation payment must be treated as Gross Payment.

Refer to the ATO's explanation here for full details.

Please note that Workers Compensation reporting in STP Phase 2 does not include payments being made under an income protection or salary continuance insurance policy. These must be processed as Other paid leave – STP2 tax code: Paid leave type O.

You should also refer to FairWork on whether super guarantee payments apply, click here.

For further guidance please refer to your accountant.

The following guide will show you how to configure the Workers Compensation pay items for the two basic conditions:

No work performed
At work performing some work

✨ Creating Workers Compensation Pay items - No Work Performed

Create a new Workers Compensation leave item by going to Payroll Settings ➡️ Pay Items ➡️ Create new pay item ➡️ select Leave;
For the Leave Type selection, select Other;
For the Leave sub-type, select Worker’s Compensation;
In Leave item name, enter a suitable name like: Workers Compensation Leave;
In Description, enter a fuller description of this item, if you wish;
In Expense, select your preferred ledger account for compensation payments such as Payroll Expenses:Workers Compensation Payments to Employees.
The Default Rates section is optional and no further selections are required.
The Other Preferences section items should be selected as needed. Please refer to your accountant if you need help on the selections here. Key considerations are: 'Include in time worked leave accruals' if workers compensation contributes to the accumulation of annual, personal and long service leave; 'Show balance on pay slip' if you want to show any balances (which will be negative balances) on the payslip.
Click Create to complete.
Once created it will set the STP2 tax reporting code to Paid Leave W.

Workers Compensation top-up

In some circumstances you may be topping up the workers compensation payment to the employee. This payment is treated in the same way as the standard workers compensation payment in STP2 and treated as Paid Leave W. This amount could be included in the standard Workers Compensation payment.

However, you may want to show this payment separately.

Also, this payment may have super guarantee obligations different to the leave item. Please check the Award, Workplace agreement, FairWork or your accountant for clarification.

To track the top-up separately, create another Workers Compensation Leave item titled Workers Compensation top-up (as outlined above) appropriately configured.

✨ Creating Workers Compensation Pay items - Some Work Performed

As previously mentioned, once an employee on Workers Compensation performs some duties, then the workers compensation payment must be reported in STP2 as Gross Payments.

To create an appropriate item go to Payroll Settings ➡️ Pay Items ➡️ Create new pay item ➡️ select Earnings;
Select the Earnings Type as Variable;
For the Leave item name, enter a suitable name like: Workers Compensation at work;
For the Description field, enter a fuller description of this item if you wish;
Select the appropriate Pay Rate basis of Hourly, Fixed Amount or Other Unit.
For the Expense account, select your preferred ledger account for compensation payments eg, Payroll Expenses:Workers Compensation Payments to Employees
If this item will accrue leave, tick the box Include in time worked leave accruals;
Tick the Tax Applicable checkbox, and select the calculation method as Gross Payments;
Under Superannuation Preferences, tick the super items that apply to this workers compensation at work item.
Click Create to complete.

Workers Compensation at work top-up

In some circumstances you still may be topping up the workers compensation payment to the employee in addition to the work performed. This payment is treated in the same way as Earnings items in STP2 and treated as Gross Payment. This amount could be included in the standard Workers Compensation payment.

However, you may want to show this payment separately.

Also, this payment may have super guarantee obligations different to the earnings item. Please check the Award, Workplace agreement, FairWork or your accountant for clarification.

To track the top-up separately, create another Workers Compensation at work item titled Workers Compensation at work top-up (as outlined above) configured appropriately.

ℹ️ Adding the Workers Compensation items to your employee

Workers Compensation Leave Items

Leave items are available for inclusion in a pay run only when a leave item has been added to the Employee's Leave tab.

Workers Compensation Earning Items

When the employee does some work then you use the Earnings item Workers Compensate at work, and the top-up if applicable. This can be added to the employee’s pay tab so that it automatically populates into the Payrun. Other earnings item no longer being paid can be removed.

Disclaimer

The information provided in this post is for demonstration purposes only and is not intended as financial, accounting, or legal advice. While we aim to provide accurate and helpful guidance on creating workers’ compensation items in Reckon software, every business has unique requirements. We strongly recommend consulting a qualified accountant to ensure compliance before implementing any changes. Reckon accepts no responsibility for any decisions made based on this demonstration.

Eric Murphy · April 3

Thanks is very helpful information.

Nice to see you're still around the Community @John G