Australians are fortunate that across our states and territories we have legislated workers’ compensation schemes designed to rehabilitate and support people back to work who have been injured during the course of their employment.
These schemes operate without the need to apportion blame for the injury or illness to any one party. The laws mean that anyone who owns and runs a business with employees must take out a workers’ compensation insurance policy to cover the unfortunate eventuality that one of those employees is injured while performing their role.
What about those who are self-employed? Can a plumber who owns and operates his own business, for example, make a workers’ compensation claim if he falls down a hole on a building site, dislocates his ankle and can’t work for two months?
The answer is: it depends. We’ll take a look at the situation of self-employed people and workers’ compensation in this article but if you need further information about anything raised here, contact compensation specialists Bourke Love Lawyers as soon as possible.
What kind of business do you own? Are you a working director?
A business with full-time, part-time or casual employees in NSW must maintain workers’ compensation insurance to cover those employees in the case of work-related injury or illness. If needed, this coverage can provide the worker with benefits including:
- Medical and hospital expenses;
- Payments for loss of wages;
- rehabilitation services;
- certain personal items (e.g. clothing or spectacles, if damaged in a work related accident);
- lump sum payment for death or permanent impairment.
In NSW, the only exempt employers from this mandatory requirement are those who pay $7,500 or less in annual wages; don’t employ an apprentice or trainee; and are not a member of a group for premium purposes.
In the case of self-employed people who own and operate their enterprise as a sole trader or in a partnership – i.e. they do not form a company – they can’t take out workers’ compensation insurance to cover themselves in the case of work injury or illness.
Instead, sole traders and unincorporated partners need to consider income protection, personal accident insurance, or total and permanent disability (TPD) insurance policies to cover them in the event of work injury. Income protection policies will usually cover you for loss of income arising from serious injury as the result of an accident, or if you contract a serious illness, while personal accident insurance will cover for loss of income as a result of an accident but not illness.
By contrast, if your self-employment involves you owning your own company that contracts to other businesses, you will be responsible for maintaining your own workers’ compensation insurance policy. In this situation, it needs to be made clear in the coverage that you are a ‘working director’ within the company because working directors are considered employees and therefore entitled to make a claim if injured. You are not covered by the policy if you own the company but are considered a non-working director.
Example: Brian owns his own carpentry business, Joint & Groove Pty Ltd. He is contracted by home builder Beaut Homes Pty Ltd to do the frame for a residential house in a new estate. Brian is a working director of Joint & Groove and while on the job, falls off a joist and breaks his leg, requiring six months off work. Because the contract for the job is between Joint & Groove and Beaut Homes, Brian’s company is responsible for any workers’ compensation claim that he makes, provided his policy specifically covers him as a working director (i.e. an employee of Joint & Groove).
To clarify, the subcontracting relationship between Brian’s company and Beaut Homes is not an employer-employee relationship. This can often be a point of contention in workers’ compensation claims involving subcontracting arrangements.
Employees v contractors
Following on from the above, self-employed contractors are not generally covered under the workers’ compensation insurance policy of the head contractor. But some contractors are ‘deemed’ workers for the purpose of workers’ compensation.
Outworkers, salespersons, rural workers and contractors under labour hire service arrangements are some of those whose services may be subcontracted – and treated as such for tax purposes – yet still be considered a worker for the purpose of workers’ compensation insurance. It should be noted that just because the worker provides an invoice with an ABN, this is not definitive of their status as either worker or contractor.
In disputes about whether a self-employed person is a contractor (and not entitled to workers’ compensation coverage) or an employee, a number of criteria are assessed.
A contractor is more likely to:
- Perform contracted services using their own skill and judgment;
- employ others, delegate or sub-let work;
- provide their own quote for the job, and supply their own tools and materials;
- carry on a business in their name, or through a business name.
Employees, by comparison, are more likely to:
- Be paid for working a specific time period each week;
- use materials and equipment supplied by the employer;
- work exclusively for the employer;
- be subject to the PAYG tax regime.
The take-out is that businesses who use subcontractors need to have a clear-eyed view about whether they are classified as arms-length contractors or employees for the purposes of worker’s compensation claims.
Seek expert professional advice
At Bourke Love Lawyers, we are specialists in workers’ compensation claims. In our area of practice in northern NSW and south-east Queensland, in particular, we provide advice and guidance to many self-employed people to ensure they are protected in the unfortunate case of work-related injury or illness.