LawTalk Blog

Workers compensation and redemptions; what does the Return to Work Act say?

redemption of workers compensation entitlements

Generally, if a worker injures themselves in the workplace and submits a workers compensation claim, and that claim is accepted, the Compensating Authority (either Return to Work SA or the self-insured employer) has a liability to pay for the worker’s reasonable medical expenses and income maintenance payments arising from the claim.

However, rather than the Compensating Authority making weekly payments for a period of time, or constantly reimbursing medical expenses when incurred by the worker, the parties can agree to a lump sum settlement that would discharge those liabilities. This settlement is called a redemption, and it has specific legal connotations and consequences.

Firstly, there needs to be an agreement to redeem entitlements. It has to be voluntary and a worker has no obligation to accept a redemption if they deem the amount to be inadequate. A redemption can be just for medical expenses, or income maintenance, or both, and a redemption is applicable for accepted claims for both physical injuries and psychological injuries.

"A redemption does not impact on a worker’s claim for compensation arising out of their permanent impairment (a lump sum compensation amount)."

Importantly, a redemption does not impact on a worker’s claim for compensation arising out of their permanent impairment (a lump sum compensation amount). This is a separate entitlement to compensation, and if a worker is suffering a permanent physical impairment as a result of their workplace injury, we recommend contacting us to discuss potential entitlements.

Under the Return to Work laws, a redemption for income maintenance will only be approved once a worker obtains professional legal advice, financial advice and medical certification from a doctor or medical expert. The costs to provide legal advice and financial advice are generally payable by the Compensating Authority (the insurer or employer).

However a redemption for medical expenses only, does not require financial advice; although it still requires professional legal advice and medical certification from a doctor or medical expert.

A medical redemption is not applicable for workers deemed to be ‘seriously injured’. The term ‘serious injury’ is specific to the Return to Work laws. A person with a serious injury suffers at least a 30% permanent impairment to their person. Many people with very debilitating injuries will unfortunately not meet the threshold of a ‘serious injury’ under the Return to Work system. Also, income maintenance redemptions are not applicable if the worker has elected to pursue ‘common law’ entitlements.

It is worth noting that whilst there is a requirement to seek professional and financial advice, there is no obligation for the worker to actually accept this advice. At Andersons, we often advise clients that a redemption is probably not in their best interests, but the worker chooses to proceed with the redemption notwithstanding the potential pitfalls of entering into a redemption agreement.

Redemption agreements not only discharge certain liabilities of the Compensating Authority in relation to the specific workplace injury, but also protect the Compensating Authority from any claims if there happens to be an aggravation or exacerbation of the injury in the future, or if a psychological injury develops later down the track as a result of the physical injury.

"Redemptions do have
some positives..."

But redemptions do have some positives. Lump sum redemption payments are currently not subject to income tax for the amount apportioned for medical expenses. But the redemption of income entitlements is still taxable. For example, if there is a redemption of $30,000 with $20,000 set aside for medical expenses and $10,000 set aside for income, a worker should only be liable to pay tax on the $10,000, not the full $30,000.

Redemptions also provide finality and closure, and this is often more beneficial than a worker staying on the workers compensation system for a protracted period of time. Redemptions have also been used as a good tool to utilise to settle disputed claims rather than fighting a dispute through the Tribunal.

The biggest consequence of a redemption of income maintenance (the equivalent of your weekly wage) stems from fact that a redemption may adversely impact future workers compensation claims, even if the next claim happens years into the future. This is a complicated area of law and one which workers often struggle to comprehend.

This peculiar area of the law can become a trap that many workers fall into if they do not obtain adequate legal advice before signing a redemption agreement. It can significantly diminish take home pay if, in the future, you have a new injury or an aggravation of a previous injury and end up in the workers compensation system again.

Redemptions can be a very tricky area of workers compensation law. If you have received an offer to redeem your entitlements or if you are interested in discussing any matter arising out of your workers compensation claim please feel free to get in touch directly with today’s blog writer.


Please note, this Blog is posted in Adelaide, South Australia by Andersons Solicitors. It relates to South Australian legislation. Andersons Solicitors is a medium sized law firm servicing metropolitan Adelaide and regional South Australia across all areas of law for individuals and businesses.

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