Workers compensation insurance is a statutory form of insurance designed to provide financial support and other benefits to eligible employees who suffer a work-related injury or illness. Depending on the relevant state or territory scheme, it may help cover lost wages, medical treatment, rehabilitation and other statutory benefits.
For contractors, the main issue is working out who is legally considered a worker. Employees, apprentices and casual staff will commonly fall within workers compensation arrangements, but some contractors and subcontractors can also be treated as workers depending on how they are engaged. An ABN or a contract describing someone as a subcontractor does not necessarily settle the question.
Quick summary
- Workers compensation insurance is designed to support eligible workers who are injured or become ill because of their work.
- Benefits can include income payments, medical and treatment expenses, rehabilitation and certain lump-sum benefits, depending on the relevant scheme.
- Workers compensation rules differ between Australian states and territories, so contractors need to check the scheme that applies to their business and workers.
- Some contractors and subcontractors can be treated as workers for workers compensation purposes even if they have an ABN.
- Workers compensation and Personal Accident & Illness Insurance serve different purposes and one should not automatically be treated as a replacement for the other.
- Contractors should review their workers compensation position when hiring staff, engaging subcontractors, changing business structure or beginning work in another state or territory.
How workers compensation works
Workers compensation operates differently from most standard business insurance. It forms part of a statutory system established under workers compensation laws rather than being one identical Australia-wide insurance product.
Each Australian state and territory operates its own scheme, and Commonwealth schemes also apply to certain employers and workers. This means the definition of a worker, insurance requirements, claim procedures, benefits and other rules can differ depending on where the work is carried out and which scheme applies.
If an eligible worker suffers an injury or illness connected with their employment, a workers compensation claim may be made. The insurer or relevant scheme then assesses the claim under the applicable legislation. Where liability is accepted, the worker may receive benefits while they recover and, where possible, return to work.
For a contracting business, this could apply when an employed carpenter injures their back lifting materials, an apprentice electrician suffers an injury on site, or an office employee develops a work-related condition. The specific outcome will depend on the circumstances and the applicable workers compensation scheme.
What workers compensation may cover
The exact benefits available depend on the state or territory scheme, the worker’s circumstances and the nature of the injury or illness. Workers compensation is generally intended to provide financial and rehabilitation support rather than simply paying a single amount following an accident.
Income payments
A worker who cannot perform their normal duties because of an accepted work-related injury or illness may be eligible for periodic income payments. These payments are commonly based on the worker’s pre-injury earnings and their capacity to work. The calculation, duration, limits and any changes to payment rates are controlled by the relevant workers compensation legislation.
For example, if an employed trades assistant cannot work for several weeks after a covered workplace injury, workers compensation may provide income payments during the period of certified incapacity, subject to the relevant scheme.
Medical and rehabilitation costs
Workers compensation can also provide benefits for eligible medical, hospital and allied health expenses associated with a work-related injury or illness. Depending on the scheme, this may include medical appointments, treatment, physiotherapy and workplace rehabilitation.
Rehabilitation can be particularly important in physical contracting work. An injured tradesperson may need a staged return to normal duties, modified tasks or workplace rehabilitation support before returning to their usual role.
Other statutory benefits
Depending on the jurisdiction and circumstances, workers compensation schemes may also provide lump-sum benefits for certain permanent impairments, death benefits or other statutory entitlements.
These benefits are not automatic. Eligibility, payment amounts, limits and claim requirements depend on the applicable legislation and the circumstances of the claim.
Do contractors need workers compensation?
Whether a contracting business needs workers compensation insurance depends largely on who works for the business and how those people are legally classified under the relevant scheme.
If you employ staff, such as tradespeople, apprentices, labourers, administration staff or other workers, workers compensation obligations will commonly apply. The position can become less obvious when a business engages subcontractors rather than employees.
Some subcontractors can still fall within statutory definitions of a worker or deemed worker. This is why simply asking whether someone invoices your business or holds an ABN is not enough. The actual working arrangement needs to be considered.
This distinction is especially relevant for construction and trade businesses that regularly use subcontract labour. A contractor may also employ their own workers, creating workers compensation responsibilities within more than one part of the contracting chain.
Our guide to contractors vs subbies: what is the difference? explains some of the broader differences between these working arrangements.
Worker or contractor?
A written agreement can be useful evidence of how two businesses intended to work together, but calling somebody an “independent contractor” does not necessarily determine their workers compensation status.
Authorities may consider the overall relationship. Relevant factors can include how the work is controlled, how payment is structured, whether the person operates an independent business, who provides equipment, whether work can be delegated and the other practical terms of the arrangement. The specific tests vary between jurisdictions.
For example, a self-employed tiler who quotes for complete jobs, supplies their own equipment, works for several builders and can arrange their own labour may have a very different working arrangement from a labourer who invoices through an ABN but works fixed hours under one contractor’s direction. The second person should not automatically be assumed to fall outside workers compensation simply because they issue invoices.
This is one reason contractors should check worker classification whenever their labour arrangements change rather than relying on the terminology used on an invoice or subcontract agreement.
Workers compensation vs personal accident
Workers compensation insurance and personal accident and illness insurance both deal with injury or illness, but they are designed for different situations.
This difference is particularly relevant to sole traders and self-employed contractors. Personal Accident & Illness Insurance can provide an income benefit to an insured person who cannot work because of an eligible accident or illness, subject to the policy. Workers compensation instead operates under statutory workers compensation schemes and is focused on eligible workers suffering work-related injuries or illnesses.
This comparison is general only. Workers compensation requirements depend on the relevant legislation. Personal Accident & Illness cover depends on the applicable policy terms, conditions, limits and exclusions.
What contractors should check
Workers compensation should be reviewed when the way your contracting business uses labour changes. A business that previously consisted of one sole trader can develop different obligations after taking on an apprentice, employee or regular subcontract labour.
The same applies when expanding geographically. Because workers compensation schemes are state and territory based, contractors working across borders may need to establish which jurisdiction applies to particular workers and engagements.
Review your arrangements when you:
Changes to your workforce or contracting arrangements can affect which workers need to be declared or covered.
Hire your first employee, apprentice or trades assistant.
Begin regularly engaging subcontractors to carry out work for you.
Start performing work in another Australian state or territory.
Change your business structure or the way workers are engaged and paid.
Take on a larger project with different labour or insurance conditions.
Experience a significant change in wages, payroll or the size of your workforce.
A business change does not automatically create a new workers compensation obligation. Requirements depend on the applicable legislation, worker classification and circumstances of the business.
It is also worth reviewing your broader business insurance arrangements as the business changes. Our guide covering three times contractors should review insurance explains other common review triggers.
How claims generally work
The exact claims process differs between workers compensation schemes, but there are several common stages. Contractors with employees should make sure staff know how workplace injuries are reported and where claims documents need to be sent.
Early reporting also helps ensure the employer, insurer and treating practitioners have the information needed to manage the claim and any return-to-work arrangements.
A typical workers compensation process
Step 1
Report the injury
The worker reports the workplace injury or illness in line with the employer and relevant scheme requirements.
Step 2
Seek medical assessment
Medical information or a certificate of capacity may be required depending on the jurisdiction and claim.
Step 3
Submit the claim
The required claim information is provided to the employer, insurer or scheme in accordance with local requirements.
Step 4
Claim assessment
The insurer or scheme assesses liability and, where applicable, manages benefits and return-to-work support.
Processes, documents and timeframes vary between Australian workers compensation schemes. A claim is subject to assessment under the relevant legislation and scheme requirements.
What affects workers compensation cost?
Workers compensation premiums are not calculated using one standard national price. Each scheme has its own premium system, and the amount a contracting business pays can depend on several factors.
These can include the type of work performed, the business’s industry classification, wages or other assessable remuneration, the number and type of workers, claims experience and the rules used within the applicable workers compensation scheme.
A contractor operating a small consulting business, for example, is exposed to different workplace risks from a business employing labourers for demolition, roofing or civil construction. This can be reflected in how the business is classified and assessed.
Contractors should provide accurate information about their activities and workforce when arranging or renewing insurance. Changes in payroll, services or staffing may also need to be disclosed. Rather than relying on a general online price estimate, compare quotes using the current details of the business and workforce.
Common contractor mistakes
One of the most common mistakes is assuming that every person with an ABN is automatically an independent contractor for workers compensation purposes. The relevant workers compensation legislation may reach a different conclusion.
Another mistake is assuming that Public Liability Insurance deals with injuries to employees. Public Liability is primarily designed for claims involving third parties, such as customers, suppliers or members of the public. Employee injuries generally fall within the separate workers compensation system.
Sole traders should also avoid assuming that a workers compensation policy covering employees automatically protects their own personal income if they cannot work. Depending on their circumstances, personal accident and illness insurance may be a separate insurance option worth comparing.
Finally, contractors working across several states should not assume the rules applying at their home address automatically determine every worker’s position. Workers compensation is jurisdiction-specific, so interstate work can require a closer look at which scheme applies.
FAQs
Is workers compensation insurance compulsory?
Workers compensation insurance is generally required for employers who have workers covered by the relevant workers compensation legislation. However, the definitions, registration requirements, exemptions and thresholds differ between Australian jurisdictions. Contractors should check the current requirements of the state or territory scheme that applies to their workers.
Does workers compensation cover subcontractors?
It can in some circumstances. A subcontractor may be treated as a worker or deemed worker under workers compensation legislation depending on the jurisdiction and the nature of the engagement. Having an ABN, submitting invoices or being described as a subcontractor does not automatically determine the person’s status.
Do sole traders need workers compensation?
A sole trader with no employees is in a different position from a business employing workers. Whether workers compensation applies depends on the relevant jurisdiction and business arrangement. Sole traders should also distinguish statutory workers compensation from insurance designed to protect their own income following injury or illness.
Does Public Liability cover employee injuries?
Public Liability Insurance is generally designed for third-party personal injury and property damage claims arising from negligent business activities. Employee injuries are generally dealt with separately through workers compensation arrangements. The exact scope of any insurance depends on its policy wording.
What if I only use subcontractors?
You should still check your workers compensation position. Some subcontractors can be treated as workers or deemed workers, and principal contractors may have additional responsibilities under some state or territory schemes. The actual relationship should be considered rather than relying only on the wording of the subcontract.
What if my business works interstate?
Workers compensation laws differ between states and territories. If your employees or subcontractors regularly work across borders, check which jurisdiction applies to each arrangement and whether the business has any additional registration, insurance or reporting requirements.
Is workers compensation the same as income protection?
No. Workers compensation is a statutory system dealing with eligible work-related injury and illness. Personal Accident & Illness Insurance and other income-related insurance products operate under their own policy terms and are designed for different purposes. They should not automatically be treated as substitutes for statutory workers compensation obligations.
Compare workers compensation options
Workers compensation can become more complicated when contractors hire their first employee, use subcontractors or work across different states. Contractor Cover specialises in insurance for contractors and trades, with straightforward information and local support to help businesses compare their insurance options.
Learn more about workers compensation insurance or get a fast quote online. Requirements and cover depend on the applicable workers compensation scheme, business circumstances and insurer arrangements.
This information is general only and does not take into account your objectives, financial situation or needs. Workers compensation requirements vary between Australian states and territories. Check the applicable legislation and regulator requirements for your circumstances.
