Workers compensation insurance is a must-have for any business that involves workers, even on a casual or voluntary basis. Employers are legally obliged to have insurance cover for workers who are injured or become ill as a result of their work activities, but understanding your obligations as a business can be challenging, with Commonwealth, federal and state/territory laws to consider.
The terms of the cover are based on the Workers Compensation Act 1987 and relate to the legal requirement for employers to maintain a safe workplace and protect employees from injury, whether it's a physical or mental health injury.
This means that if a worker sustains harm while at work or engaging in required duties they're entitled to first aid, financial recompense for time off, injuries and expenses, and a rehabilitation plan for their return to the workplace.
This generally applies even if the worker failed to correctly observe business protocols and procedures, unless their behaviour amounted to extreme misconduct.
What does workers compensation insurance cover?
Workers compensation typically provides cover for insured incidents including:
- physical injury
- mental health injury
- diseases that an employee may have contracted during their employment
- injuries while travelling for work (in some states)
- recurrence of an existing disease or condition as a result of work
- exacerbation of an existing disease or condition as a result of work.
The three preconditions for receiving compensation are:
- the worker is an employee as defined in the law of their jurisdiction
- the worker has a medical condition that has been diagnosed by a qualified as arising out of or in the course of employment
- the worker has suffered a financial loss (such as loss of income or medical costs).
Who is eligible to be covered by workers compensation?
The intention of workers compensation insurance is to support an employee in avoiding suffering financial hardship as a result of an injury or illness arising from their employment activities or conditions. It goes toward compensating workers who are injured at work for lost wages for a specified period if they're unfit to work, and may also pay for doctors' and medical costs, and compensation for permanent impairment or death.
Workers compensation insurance protects employees including:
- full-time and part-time workers
- piece workers such as sewing machinists working from home
- workers on commission
- directors who work in the business
- contractors and subcontractors in some circumstances.
Are sole traders required to have workers compensation insurance?
In New South Wales it's compulsory for sole traders to have workers compensation cover for their workers in any capacity, including contractors under a service or training agreement and paid more than $7,500 a year in wages. This includes apprentices, trainees and volunteers who work for a sole trader.
For businesses employing contractors, obligations vary according to your state or territory so it's best to check with the relevant authority.
In some states an independent contractor may have their own employees and also be covered for workers compensation as a working director or limited liability business, or be covered as an employee if they are a director of a private limited company.
Sole traders who work by themselves are not eligible for workers compensation insurance to protect themselves and need to organise their own personal illness, death or disability insurance.
How to arrange workers compensation in Australia
Workers compensation is highly regulated in Australia and a business arranges this type of cover based on location. For some states/territories there is a mandatory single workers compensation provider, and in other locations there is flexibility for businesses to choose the workers compensation insurance provider.
