4.13.2.30 Compensation Part of Lump Sum - 50% Rule

This topic

This topic contains information on the following:

  • lump sums cannot be broken into parts,
  • 50% rule,
  • applying the 50% rule to a lump sum payment, and
  • state schemes where damages payments and no-fault compensation has been paid.

Summary

This topic explains the 50% rule for assessing the compensation part of a lump sum payment when a lump sum is received as a settlement. It explains how the rule is applied.

Lump sums cannot be broken into parts

A 1997 Federal Court decision (Cunneen) made it clear that the constituent parts of compensation (for the same compensable event) should be aggregated into a single lump sum payment when applying the compensation provisions. This means that arrears or advances of periodic compensation payments paid with other compensation components as one lump sum payment cannot be separated to calculate their effects under the SSAct.

To calculate the compensation part of the lump sum payment (for the same compensable event) for a compensation claim (finalised after a contested hearing by a court, tribunal or arbitrator) the specific amounts awarded for economic loss, including the arrears or advance of the periodic compensation payments, are taken to be the compensation part of the lump sum payment and the 50% rule does not apply.

Exception: Assessment of a single settlement sum paid for multiple, separate claims.

When a compensation recipient has received a single settlement sum paid for multiple separate claims (for separate compensable event) (e.g. 2 unrelated workplace injuries) it is critical to determine how much of the settlement sum was paid in relation to each compensable event. If no further information can be obtained about how to attribute the settlement sum to the various compensable events, it is acceptable to divide the settlement sum by the total number of compensable events in order to determine the lump sum paid in respect of each compensable event (see Savage v DEEWR [2008] FMCA 32).

If the settlement document does not state how much compensation was paid for economic loss in relation to each compensable event, the 50% rule should then be applied to the lump sum which it was determined was paid in respect of each compensable event.

Act reference: SSAct section 17(3) Compensation part of a lump sum

Policy reference: SS Guide 4.13.2.50 Aggregation of Multiple Lump Sums

50% rule

In order to calculate the lump sum preclusion period, the compensation part of a lump sum payment for the same compensable event must be determined. The 50% rule deems half the lump sum payment as being the compensation part in ALL cases where:

  • the lump sum payment is received as SETTLEMENT of a claim, including as a consent judgement, as an interim payment, or a redemption of periodic payments, AND
  • all or part of the payment is for:
    • lost earnings, OR
    • lost capacity to earn.

Act reference: SSAct section 17(3) Compensation part of a lump sum

Policy reference: SS Guide 4.13.2.60 Lump Sum Preclusion Period - General

Applying the 50% rule to a lump sum payment

The 50% rule is applied to the gross lump sum for the same compensable event. The only allowable deduction is periodic compensation that must be repaid because of the lump sum payment. The gross lump sum depends on the terms of the award or settlement. The following table shows how the 50% rule is applied in various situations.

If the terms specify that the lump sum… Then the 50% rule…

includes past periodic payments that are liable to be repaid,

Example: Settled for $300,000 with any past periodic payments to be repaid.

applies to the lump sum payment (LSP) less the repaid periodic compensation payments (RPCP), i.e. the amount of the lump sum compensation payment is:

LSP - RPCP.

includes legal and medical costs in the gross settlement,

Example: Settled for $200,000 inclusive of legal and medical costs.

applies to the total lump sum payment.
includes an ADDITIONAL amount for legal and/or medical costs, applies to the total lump sum payment including the additional amount.

excludes legal costs from the lump sum payment,

Example: Settled for $125,000 exclusive of legal costs. The legal costs are fixed at $7,250.

applies to the total lump sum payment i.e. the 2 separate lump sum payments are aggregated.

excludes costs from lump sum payment but costs not determined at date of settlement,

Example: Settled for $125,000, costs to be determined.

applies to the lump sum payment at date of settlement (when these costs are determined at a later date, they are not assessed for compensation purposes).
includes Centrelink charges (indemnities) specified or unspecified,
  • applies to the lump sum payment plus the amount specified, OR
  • applies to the lump sum payment plus the amount calculated by Centrelink if unspecified.

includes an amount for tax either:

  • deducted from periodic payments, OR
  • payable on a past economic loss amount,
applies to the total lump sum payment including the tax amount.

Act reference: SSAct section 17(3) Compensation part of a lump sum, section 17(4) Where a person:…

Policy reference: SS Guide 4.13.2 Lump Sum Compensation

State schemes where damages payments & no-fault compensation has been paid

Many state schemes provide for payments made under their no-fault statutory schemes for workers compensation and/or motor vehicle accident compensation to be repaid or otherwise taken into account when common law damages are paid.

In most states a re-repayment will be required if damages are paid by a third party. For example a worker injured in a motor vehicle accident in the course of their employment will need to reimburse the workers compensation scheme from any damages obtained from the driver at fault.

Some state schemes have provisions which apply to all damages payments. See Queensland's example below.

State Provisions
Queensland

The Queensland Workers' Compensation and Rehabilitation Act 2003 has a statutory requirement that a person paying damages must first reimburse the workers compensation insurer all statutory compensation paid.

Although some settlement documents may state that they waive or forgo the re-imbursement the parties cannot legally contract out of their statutory obligation to reimburse the statutory compensation.

In each Queensland work related damages settlement the amount paid under the statutory workers compensation scheme and any known legal costs are included in the gross lump sum amount. This will include medical expenses, impairment payments, periodic compensation, tax, GST etc. paid under the statutory scheme on a no-fault basis.

This and other jurisdictions who have similar provisions, only the amount of repaid periodic compensation can be deducted from the gross lump sum amount as provided by the SSAct in section 17(4).

Act reference: SSAct section 17(4) Where a person:…

Policy reference: SS Guide 4.13.2 Lump Sum Compensation

Last reviewed: 7 November 2016