Workers’ Compensation is a compulsory insurance required by all employers, regardless of their business location in Australia. This insurance provides compensation to employees if they suffer a work related injury or disease. Definition of employee can also vary from full-time, part-time or casual workers. Benefits can include weekly living payments, rehabilitation services, coverage of medical and hospital bills, and lump sum payments for permanent injuries. The policy coverage varies in different states and per individual but in essence, Workers’ Compensation Insurance is required when you have employees.
Do contractors or sole traders need Workers’ Compensation Insurance?
Whilst an employer is legally obliged to provide Workers’ Compensation Insurance for their workers, contractors themselves don’t necessarily need this type of insurance. It all comes down to the definition of ‘worker’, because if a contractor hires someone to perform paid work for their business, then that person hired is deemed a ‘worker’ and the contractor is required to provide Workers’ Compensation Insurance.
For example, if a builder hires an electrician or plumber to work on their site or a painter hires someone to paint a customer’s home, then the builder and the painter need to take out Workers’ Compensation Insurance for these workers. Any person who works under a contract of service is considered to be a ‘worker’, even if they have an ABN or pay their own tax. It’s important to remember that only an individual can be considered as a ‘worker’.
Sole traders, on the other hand, can’t cover themselves with Workers’ Compensation Insurance. Instead, they need a policy that covers them for death, disability, illness, accident or sickness, and compensates them for their lost revenue while they recover. However, if they employee workers, they also need Workers’ Compensation Insurance. To make sure you have the right insurance for yourself and your business, speak to an Adviser.
What happens if you don’t take out Workers’ Compensation Insurance – when you should?
WorkCover (also known as Worksafe in VIC, ACT, TAS, QLD & WA) will make sure that the employee receives all benefits that are required under Workers’ Compensation Insurance, however they may also penalise the employer. These penalties are outlined in section 452 of the Workplace Injury Rehabilitation and Compensation Act 2013, and the employer may be liable for the total costs of any claims made by the worker.
If an employer doesn’t have Workers’ Compensation Insurance, an employee who needs to make a claim can still apply for workers compensation benefits through the relevant State Workers Compensation Authority, who will manage their claim and investigate the employer. To the uninsured employer, the financial costs of not insuring their employees can be devastating. Weekly compensation and medical benefits, common law damages, penalties for not insuring can easily add up to more than a million dollars, leaving small businesses financially crippled. The financial costs of an uninsured workers claim far outweighs the costs of paying premiums over the long term.
To decide whether Workers Compensation is required for your business, talk to an insurance specialist today.
General Advice Warning
The information provided is to be regarded as general advice. Whilst we may have collected risk information, your personal objectives, needs or financial situations were not taken into account when preparing this information. We recommend that you consider the suitability of this general advice, in respect of your objectives, financial situation and needs before acting on it. You should obtain and consider the relevant product disclosure statement before making any decision to purchase this financial product.